Everything Landlords Need to Know About Security Deposits Everything Landlords Need to Know About Security Deposits
Onboarding new tenants can be one of the most intensive aspects of being a landlord, and collecting security deposits is a critically important part of this process. If you're a landlord, you already know that the security deposit collection and compliance process is a complicated one.
Below, we break down the entire security deposit process and tackle some of the most common questions related to security deposits including what a security deposit is, when security deposits are usually collected from tenants, what landlords can deduct from a security deposit, when landlords have to return a security deposit to their tenants, and more!
What is a Security Deposit?
A security deposit is an important tool a landlord may use to help protect themselves and their property when entering into a rental agreement with renters. While not every lease agreement will include a security deposit, they are a common way for property managers to financially insulate themselves in the event a renter breaks a lease or damages a rental property. A security deposit is commonly the equivalent of the monthly rent for a property, although higher and lower value security deposits do exist.
When is a Security Deposit Collected from Tenants?
Security deposits are usually paid by a tenant when the sign a lease, before they move into the rental unit, along with first month's rent and sometimes last month's rent (depending on the lease agreement). Commonly, the terms of the security deposit including the amount of the deposit, when it will be paid by the tenant, and when it will be returned to the tenant by their property manager will be stipulated in the terms of the lease, and some of those terms may be mandated by state law.
Do Landlords Have to Pay Interest on Security Deposits?
Some states require that landlords pay interest on security deposits, usually accrued on an annual basis. Rates and conditions for interest on security deposits will also vary by state, so it's crucial for landlords to familiarize themselves with the laws in the state they're operating in to ensure they remain compliant with regard to any security deposits they're holding. Security deposit management tools can help automate this process for landlords.
Do Landlords Have to Provide Written Notice About Security Deposits to Renters?
Once again, some states and municipalities require by law that landlords provide written notice to their renters spelling out the terms on which their security deposit is being held. This notice may include the amount of the deposit, details on the account where the deposit is being held, the rate at which any interest is accruing on the deposit, and the terms under which the renter can expect the deposit to be returned. Again, security deposit management tools can help automate the delivery of this written notice to renters.
What Can Property Managers Deduct from a Security Deposit?
While rules surrounding what a landlord can deduct from a security deposits differ by state, generally landlords can only withhold money from a security deposit in the event that they incur financial or material damage. Again, property managers should familiarize themselves with the specific laws of the state that they're operating in, but some of the common causes for reducing the amount of a security deposit returned to a tenant are unpaid rent, breaking their lease early, damage to the rental unit caused by the tenant necessitating repairs, any additional unpaid charges or fees stipulated in the lease (such as utilities), or the costs of storing or moving the tenant's property if they fail to take it with them when moving out.
What Kind of Property Damage Can Prevent the Return of a Full Security Deposit?
Some leases will stipulate what tenants can and can't do to the property they are renting (like painting walls) and failing to adhere by these stipulations could open you up to receiving a reduced security deposit or even failing to get your security deposit back altogether. However, landlords must account for normal wear and tear to their rental until and won't be permitted to reduce a security deposit for things like old paint fading or chipping. Some common examples of things a landlord may be able to charge their tenant for, subtracting the appropriate amount from their security deposit, include:
- Nonpayment of rent
- Broken fixtures, walls, or appliances
- Damaged floors
- Failure to comply with lease stipulations (painting walls, changing light fixtures, adding shelving)
- Damage to plumbing
- Any excessively dirty or moldy areas
- Leaving personal property behind
Tenants who clean their rental until on a regular basis and communicate any damages or necessary repairs when they come up instead of waiting until they move out will generally have a better chance of avoiding receiving a reduced security deposit back.
When Do Property Managers Need to Give a Security Deposit Back?
Again, rules about how long landlords and property managers have to return the security deposit to tenants are dictated by state laws, but the timeframe is generally within 30 days following the end of the lease. If the landlord is making any deductions from the security deposit before returning it to the tenant they must provide an itemized list with written explanation detailing the reduced amount of the security deposit.
If a landlord fails to return a security deposit within the time frame specified by the law in the state they are operating in, their tenant can file a lawsuit in small claims court to attempt to recoup their deposit. The tenant would be required to prove that they had paid the security deposit, caused no property damage, is current on all rent and other fees stipulated in their lease, requested return of the security deposit, and had not received their security deposit back within the timeframe specified by the law in the state in which they reside. Conversely, the landlord would have to prove that the tenant was responsible for property damage exceeding normal wear and tear along with documented estimates of the cost to repair the damage.
How Can Landlords Simplify the Security Deposit Process?
We know how hectic property management can get, that’s why we developed an innovative solution that automates, simplifies, and modernizes the security deposit management and compliance process. And the best part is it’s totally free!
Simply open an account with our easy-to-use digital platform ZDeposit, invite your tenants to join, and sit back and relax knowing your security deposits are being held and managed correctly while at Leader Bank!
