Curious about how to apply security deposits? Learn how to use and enact policies in your rental to improve your security deposit management in accordance with your legal obligations as a landlord or property manager.
If you’re a landlord or property manager, you know the importance of security deposit management. It is an important and useful element of renting your property to a new tenant.
These deposits allow you to ensure you can repair any potential damage to your property and encourage your renters to exercise caution in their care of the home.
However, it is equally important to ensure that you follow good security deposit management practices. Good practices can contribute to positive relationships with your tenants, property safety, and your financial health.
When you are enacting security deposits, it’s important to know the laws you fall under, the amounts you can and should charge your tenants, and what you can use the security deposits for.
Know Your Local Laws:
When you become a landlord, you must know what laws you fall under. There are state laws about security deposits and security deposit management, as well as local laws for cities and counties that may change how you can use these deposits.
Additionally, many jurisdictions have laws regulating the amount that you can charge for a security deposit. Typically, these laws place limits that depend on the amount of rent you charge, often one or two months’ rent. However, as these laws are state-by-state, it is best to look into your specific state’s laws on security deposits.
Some locations also have laws on when you are required to return security deposits. The exact timeframes you have vary depending on the state. Refund timing requirements can range from 14 days (like Hawaii) to 45 days (like Indiana), but promptly returning any unused deposit money is the best practice.
What you can use Security Deposits for:
Generally, you can use security deposits to repair damages that exceed normal wear and tear. Damages that come from normal use of a property, such as scuffs on walls, worn carpet, minor holes from hanging pictures, warped doors and cabinet doors, and other similar minor damage. These things would typically not be covered by a security deposit. In these cases, you would return it to the tenant.
Damage beyond normal wear and tear includes issues such as stained or ripped carpets, unauthorized paint or wallpaper, and major wall damage such as large holes, among others. You can spend your former tenant’s security deposit on repairing this damage. In these cases, you can fill in holes in walls, clean or replace damaged carpet, or perform other repairs with the money given. Keep in mind that your area may have strict requirements on documenting the state of the property before move-in and will require receipts and proof that the security deposit expenses were utilized for the repair. Conducting property inspections and tracking your receipts are vital. Digital tools can help with both of these tasks.
Learn more: What’s the Difference Between Wear & Tear vs. Damage
What to do When a Security Deposit Doesn’t Cover Damages:
While this is an uncommon occurrence, it is one landlords often fear. However, there are a few ways that you can ensure your property is repaired, even if the deposit wasn’t enough to cover damages. Communication is key here, ensuring that both you and your tenant are aware of the money involved.
Firstly, as is best practice, you should always document any damage to your property before and after the tenant moves in. This ensures maximum transparency and shows the additional damage that may have occurred. Ideally, you should take photos or videos of the property to ensure that these damages are known.
Secondly, you should document the costs of any repairs. Keep any quotes and receipts for the repairs needed, and send a formal letter to the former tenant detailing the damages and the costs exceeding their security deposit. If you don’t get the money back, this may become a legal issue, for which you should consult a lawyer.
Best Practices: Security Deposit Management:
When handling security deposits, there are some methods you can use to ensure that your deposits are safe. Outerbridge Law’s Guide to Security Deposits recommends that you ensure that every deposit is documented with receipts. They also state that you should make clear what the deposit will cover and collect it before the tenant moves into the property.
Some jurisdictions have laws regarding how a security deposit is held and what happens to any interest gained while the deposit is held. However, even if you don’t fall under one of these, you should still keep the deposit separate from your money to ensure that it is held securely and transparently.
Final Thoughts:
Security deposit management is an important aspect of being a landlord or property manager. Fortunately, it is easy as long as you follow a few key guidelines. If you keep your laws in mind, communicate with your tenants, and document everything, security deposit management can be made simple. Avoid disputes and stay compliant — follow our security deposit best practices.
