A security deposit is an amount of money that is collected by the landlord or property management company when a new tenant moves into a rental unit. At its core, a security deposit or “damage deposit” protects landlords in case their tenant trashes the apartment, ups and leaves, and so on. That way, they won’t be at a loss when their tenant falls off the face of the earth.
The security deposit is a refundable fee that should be returned to the tenant at the end of the lease. If the rental unit needs repairs or if the tenant has unpaid rent, the landlord can keep the security deposit, rather than taking the tenant to court.
How much security deposit can landlords collect?
As a rule of thumb, the security deposit is one month’s worth of rent. It’s important to note, however, that some states have specific laws that determine the amount that property owners can collect. For instance, in Kansas, the security deposit for a furnished unit is one and a half months’ worth of rent. If your state does not have rules regarding how much you can charge, consider the following factors:
- Your monthly rent. Will one month’s worth of rent be able to cover the costs to repair the unit in case the tenant trashes it? If not, you should consider collecting more.
- Your tenant’s payment history. If your tenant’s previous landlord evicted them due to non-payment of rent, you should contemplate collecting more than you would for a tenant with a clean record.
- Your unit’s amenities. Is your single-family home better than other homes in the area? For instance, if your unit was newly renovated, you’ll want to collect more to protect your investment.
- Your tenant’s insurance policy. Does your tenant have renter’s insurance? Confirm if they also have security deposit insurance. If they do, their insurance company will directly pay you in case they leave the unit in poor condition when they move out. Hence, you no longer have to double their security deposit.
Where should the security deposit be deposited?
Again, some states have rules regarding how the security deposit should be handled. In states such as Massachusetts and Maryland, property management companies must put the amount in an interest-bearing account. The interest should then be given to the tenant when their lease agreement ends. If you’re not sure what your state’s laws are, get in touch with a real estate agent or a property management company today.
Whatever your state’s rules are, you should strive to maintain accurate accounting records. In doing so, you can avoid being sued by your tenants.
When do landlords not have to return the security deposit?
The allowable reasons for not returning the tenant’s security deposit are different for each state, however, these five are common across all states.
#1 The tenant breaks or terminates the lease early
If the tenant breaks the lease prior to its end date, the landlord can keep the security deposit. How much the property owner can keep depends on local landlord-tenant laws, as well as the wording of the lease agreement. For instance, if the contract states that the landlord can deduct the tenant’s unpaid rent, then they both have to abide by these terms. If the security deposit is insufficient, the tenant should pay the property owner the amount that they owe.
#2 The tenant does not pay their rent
If the tenant refuses to pay their rent, the landlord can convert the security deposit to cover the unpaid rent. It’s worth mentioning that when a tenant does not pay their rent, they also fail to fulfill their contractual responsibilities. Hence, you can evict your tenant on these grounds, especially if they’ve been unresponsive even after they’ve been served notices.
To avoid this entirely, enlist the services of a property management firm. They can conduct thorough tenant screenings so that you can rest assured that your tenants are responsible.
#3 The tenant damages the property
Another reason for not returning the security deposit is when the tenant leaves the unit in visibly bad condition. In other words, the property owner can keep the security deposit in case the tenant causes damage to the unit. Damage, however, is not the same as “wear and tear”. To differentiate the two, here are a few examples:
- Large holes in the wall
- Large stains on the carpet
- Large scratches on hardwood floors
- Cracked tiles in the kitchen countertop
- Broken doors and windows
- Broken appliances
Wear and Tear
- Faded paint
- Small stains on the carpet
- Small stains on the walls
- Loose door handles
- Dirty appliances
You will have to prove that the tenant actually damaged the rental unit. In other words, you’ll have to compare its current condition to its original condition. If you conducted a move-in inspection that was complete with “evidence” (e.g. videos), you can easily prove this. However, if you failed to inspect the property prior to move-in, you’ll have a harder time convincing your tenant (and the court) to let you deduct the amount.
#4 The rental unit needs cleaning
Normal cleaning costs can’t be deducted from the deposit. For instance, if the tenant forgets to throw out the trash, you can’t use their security deposit to hire a cleaning service. If, however, the tenant turns the unit into a dump — imagine piles of garbage in the living room — then it would be reasonable to use the security deposit to cover the costs of hiring a cleaning service.
#5 The tenant has unpaid utility bills
Similar to unpaid rent, the tenant is not entitled to the return of their full security deposit if they have unpaid utility bills (e.g. water, internet, and electricity). Again, remember to document how much they owed their utility company, as you will have to send your tenant a detailed list of deductions.
To ensure that you don’t go against your state’s rules and regulations, consult your legal counsel. It’s also advisable to conduct move-in and move-out inspections to ensure that everything is documented. Your tenant should also sign the inspection reports so they can’t claim that you did not conduct them.
A property management company such as Luxury Property Care can make sure that you collect and keep security deposits without going against the law. Since landlord-tenant laws are always changing, our property managers make it a point to keep themselves up-to-date.