Guide to Security Deposits: 5 Things Landlords (and Tenants) Should Know

Security deposits can trigger the age-old “he said, she said” debate in landlord and tenant relationships. While the onus is on the tenant to preserve their rights to their money by documenting the condition of the property when they moved in, it is still the responsibility of the landlord to implement best practices in their dealings with tenants. Here are five things both landlords and tenants should be aware of when it comes to security deposits:

1. Get it in Writing
One of the first tenets of landlord-tenant best practices is that the landlord require that the tenant acknowledges the condition of the rental property the day they take possession/activate the lease. According to best practices, this acknowledgment must be in writing. There should be a formal walk-through, with both tenant and landlord noting any issues with the rental, large or small. This document should then be signed and dated by both parties, with numerous copies available.

2. Laws Regarding Security Deposits
As a landlord, you must abide by your state’s specific laws regarding security deposits. For example, some states require that the total security deposit amount cannot exceed the value of two months of rent. Many specify that the deposit money has to be kept in a separate account so that interest on the money can be tracked and kept separate from the landlord’s personal funds. As for the interest on the security deposit money – many landlords and tenants alike are often surprised to learn that this interest income has to be paid to the tenant as well.

3. Timing On Repayment
Once a tenant vacates a property, the landlord generally has 45 days to determine the deposit amount to be returned as well as actually repay the tenant. Deadlines and rules for repayment tend to be very much in favor of tenants, as late repayment can pave the way for tenants taking the landlord to court and receiving as much as three times the original security deposit.

4. Property Photos, Copies of the Lease, and Inspection
It is also crucial that the signed, dated lease and inspection report be created in triplicate with a physical copy provided to the tenant documenting all agreed-upon items. Taking photos is another way to avoid “he said, she said” disputes down the road. While the tenant should do this for their own protection, the landlord can do so as well in order to effectively document the condition of the property on the day the new tenants moved in.

5. If Damage is Done
Having to repair a unit during or after a tenant’s tenure should be documented as thoroughly as possible. This means keeping the receipts for all supplies and paid contractors or service providers so that the total amount of damage can be matched with tangible, real-world proof. This way, when it comes time to repay a tenant’s security deposit, it will be a matter of basic math: subtracting the total amount required to restore a unit from the security deposit plus any accrued interest. This way, if the tenant decides to dispute any subtractions and the matter ends up in court, along with your photos, you will have tangible proof as to what was required to get the unit back into livable condition once again.
The matter of security deposits can be a sticking point for both landlords and tenants. Educate yourself about the specific rules in your state, and you'll make the landlord-tenant relationship a much more harmonious one.

POSTED March 26 2015 3:40 PM

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