Sure, most people have heard the term security deposit and are at least somewhat familiar with its purpose. However, it is important to adhere to state and local laws when it comes to handling a security deposit and if you have uncertainties about collecting one – here is an opportunity to gain a better understanding.
According to the California Judicial Branch, a security deposit is defined as “Any money a landlord takes from a tenant other than the advance payment of rent.”
Should a renter for example default on paying their rent or damage the property – the security deposit serves as protection for the landlord to cover the costs associated with violations of the rental agreement. Knowing when to withhold returning the security deposit and when to return the money is an important aspect of being a legally compliant and responsible landlord.
How much should I charge?
The amount you can charge for a security deposit varies by state. In some states, there is no limit to what you can charge, while in other states such as California, the cap is the cost of two month’s rent. In Hawaii however, the limit is one month’s rent while an additional month’s rent is required for renters with pets. Remember, the security deposit is always in addition to the first month’s rent. Consider searching online to see what competitors are charging. If you charge too much, not only do you risk turning away potential renters, but you may not be in compliance with state and local laws. On the other hand, you want to make sure you charge enough to cover unpaid rent, property damage or extra cleaning fees upon move-out.
Agree to the condition of the property prior to move-in.
Prior to your new renters moving in, conducting a walk-thru will give them an opportunity to document the property as is. They may take photos and it is recommended that both the landlord and tenants agree in writing upon the initial condition of the property before move-in. Once the renters pay the security deposit, give a receipt for the transaction. When the tenants are ready to move out, conduct an additional walk-around and to check for damages that may have been incurred during their residency.
Legal requirements for returning a security deposit.
Again, just as with laws pertaining the acceptance of a security deposit – state laws vary regarding the withholding of a deposit. There must be a legally sound reason for not returning the initial deposit. For landlords returning the payment, there are certain time limits that apply, as well. For example, in the state of California, within 21 calendar days a landlord must either send the entire security deposit refund, or choose to mail or personally deliver an itemized statement of deductions. Included in the list are reasons for the deductions, along with the amounts and any remaining refund.
Communicate with your renters.
When renters are getting ready to move out, communication is key. Just as when the tenants moved in, they should once again photograph and document the condition of the property to avoid any potential disputes. Having checklists, both at the time of move-in and move-out can help expedite the process and make it smooth. Encourage them to take the time to thoroughly clean the property before leaving, to potentially avoid unexpected expenses that you might incur as the landlord.
How wear and tear differs from property damage.
Understanding that withholding a security deposit for property damage purposes differs to typical wear and tear on a property upon move-out. Your property was their home – a place where they hang curtains on the windows and photographs and shelves on the walls.
Common violations of the rental agreement.
Paint color is something that may have to be considered, depending on your language used in the rental agreement. If your property has clean, white walls then it is under your discretion whether the renters may paint the home, and if you have a say in what colors can be used to avoid penalizing their deposit. You can also include verbiage that dictates what condition you expect the property returned to if the renters decide to modify it. Additional features such as TV wall mounts may require more attention than just a little drywall putty to fill the holes, and not thoroughly fixing this once removed can pose a liability for future renters.
Your local apartment association can help.
Understanding the laws associated with security deposits can be complicated and they are subject to change. Landlords are encouraged to take advantage of benefits of joining a local apartment association. These associations can provide the resources to keep you compliant with changing legal requirements and assist you should any questions come up. Visit the National Apartment Association’s website to find your local affiliate.
