How to Avoid Security Deposit Disputes

Security deposit disputes are second to only late rent disputes when it comes to owner / renter problems and I think most of the problem lies in the fact that each party has their own idea of how a security deposit should be handled.  I am certain you can imagine how polar opposites these two ideas are, but believe it or not, there are very standardized guidelines in the industry that if followed, will help you to avoid security deposit disputes from becoming inevitable.

Before we go on, let me remind you that each state has their own laws regarding the amount of security deposit you can hold.  Everything you need to know about California Security Deposits can be found here. These types of disputes can often be settled by having reasonable conversations but can also turn into ugly small claims and court appearances.  To make sure this does not happen to you, there are a few things you can do to possibly avoid security deposit disputes with your renters.

Put Very Specific Security Deposit Language into Your Lease

Make certain you have a solid lease in place that adequately addresses a security deposit.  Things to keep in mind when you are drafting up your clause about the security deposit are:

• Dollar amount of the security deposit.
• Definition of “normal wear and tear.”
• How and when security deposit is to be returned to the renter.
• What warrants use of the renter’s security deposit.
• How disputes can be handled without the need of legal action.

While you may think addressing the appropriate legal language concerning security deposits always means hiring a lawyer, fortunately you may look to a local apartment association like the Apartment Association of Greater Los Angeles for a lease form that takes into consideration all of the above and much, much more.

Frequently Inspect Your Rental Units

This too should be a very important thing to mention when signing copies of the lease.  Besides writing it into your lease, be sure you take this seriously and inspect your rental units at least two times each year and handle any maintenance issues your renters may have.  Your renters will constantly have these routine inspections in the back of their minds and will naturally want to care for the rental unit since “most” good renters will also want to avoid disputes.

You do not have to say these inspections are necessary to “make sure you do not damage my property” but sell it like you care about the maintenance of your rental units to keep it at optimal conditions.  This will also come in very handy for when you want to increase your rent!

Follow California’s and Local Security Deposit Guidelines

You want to always stay within the law to avoid future costly lawsuits.  Keep in mind that in California, you can hold 2 times the rent amount as security deposit.  If the rental unit is furnished, you are entitled to hold 3 times the amount and if you are renting a commercial property, there is no limit on what you can hold from a security deposit standpoint. 

Keep in mind that a renter must provide you a 30-day written notice or intent to vacate the rental unit.  The owner then has 21 days to either return the deposit in full or provide the renter with:

• A written letter explaining why the owner is keeping part or all of the security deposit.
• A detailed list of the deductions.
• The remainder, if any, of the security deposit.
• Copies of the receipts / invoices for the repairs done to the rental unit unless the repairs are under $126.00 or the renter has given up his / her rights to receive the receipts.

Some additional reasons why an owner may be able to keep all, or a portion of a security deposit include:

• Owners can also keep part of the security deposit when there was no reasonable effort to return the rental unit “clean” excluding normal wear and tear. The owner may not deduct more than what it would take to make the rental unit as clean as it was when first rented to the renter.
• The cost of damages caused by the renter’s guests or visitors.
• The owner may keep and use the security deposit to cover any unpaid rent, including in circumstances when the tenant does not give proper 30 days’ notice prior to moving out.
• The owner may keep a portion of the security deposit to cover any unpaid utility bills such as water, electricity, trash, etc.
• When a renter terminates the lease and the owner and renter did not reach an agreement.

Keep in mind that in the City of Los Angeles, security deposits held are subject to interest for properties subject to the Rent Stabilization Ordinance.  In the City of Los Angeles, there are two options of determining the interest amount. The first option is to use the interest rate established under the Rent Stabilization Ordinance and pay it to the renter either monthly or yearly.  The second option is use what the security deposit interest has accrued.  If the owner decides to go with the latter, he or she must provide copies of the bank statement that shows the amount of interest earned.

Move-in and Move-out Checklists are a Must

If you want to start any relationship your renter off on the right foot, providing a move-in, walkthrough inspection of the rental unit with a checklist is the easiest way to do it!  Doing so will help build a relationship based on trust, transparency and understanding.  Make sure you point out anything you have had issues with in the past with that specific unit such as an area where you have seen above normal wear and tear for carpet wear, dirty wall areas etc.

Make sure you take a lot of pictures with the date stamp function enabled and have your new renter sign the move-in checklist and express that you are looking forward to his / her cooperation to returning the unit in the same state as it was rented, minus normal wear and tear of course.  Give your renter a copy of the move-in inspection report and also the routine inspections so that the renter knows you are always on top of your rental units to help keep your business running smoothly.

When it comes time for your renter to move-out, remind your renter that a move-out assessment is mandatory prior to his / her receiving any amount of the security deposit.  Remind them that you legally have 21 days to return the security deposit, and that you are aware of the renter’s right to know how much, why, and provide proof of any amount retained. 

At the end of the day it all boils down to communication, common courtesy and common sense.  Focus on starting and keeping your relationship with your tenant on the right foot so you can avoid expensive and nasty conflicts in the future or at the end of their tenancy. Remember to treat others the way you would like to be treated and stay as transparent and honest as possible.

About the Author: Patti “Widget” is the Marketing Director for the FastEviction.com Law Group.  She has approximately 25 years of property management experience.  Patti is a prolific author on all things rental housing and is a frequent speaker.  You can reach Patti at (800) 686-8686.