Security deposits are easy to collect and a little harder to return. There are some regulations and guidelines that every landlord needs to be aware of and observe when they are handling security deposits. Landlords must be clear about things like how much they can collect in the first place, how fast it needs to be returned, and what you can and cannot deduct from a security deposit.
Collecting a Security Deposit
When you begin your tenancies, the maximum you are allowed to collect for an unfurnished rental is two times the monthly rent. If your rental is furnished, you can collect up to three times the monthly rent, and there is no limit on commercial space. But if you are managing residential properties, you want to make sure you are sticking to those limits.
Security Deposit Timelines
Upon move out, the accounting needs to be completed by the 21 day mark. At that 21 day mark, you need to provide the tenant with a statement of charges as well as a balance. If work is still ongoing, you can use a good faith estimate but the tenant needs to receive the actual receipt from the repair within 14 days of the repairs completion.
Returning the Security Deposit
When you need to return the deposit, it’s also important to know who to make the check out to, especially if you have multiple adult renters. Best practice is to address the check to every tenant on the lease using the word ‘and’ to join the names. For example, you would say John Doe and Jane Smith.
As you’re putting together your statement to return the security deposit to your tenants, it’s important to know what you can and can’t deduct for. Ordinary or normal wear and tear is unavoidable deterioration in a unit resulting from every-day normal use. A repair issue that warrants a deduction against the security deposit is typically damage that was avoidable, accidental, or even negligent.
If you are a landlord who has personally lived in this home before, it’s also important for you to draw the distinction between how you kept the home and how an ordinary renter would keep the home. Some owners are beautifully meticulous in the way they maintain their homes. But, you need to judge the wear and tear in your property against what’s average for the ordinary person and not necessarily how you kept the home during your time there. That is an important distinction to draw.
Life Span of Property Items
You should know the expected life span for things like carpet, paint, appliances, and anything else that isn’t rated for lifetime use. It’s important to not deduct for the entire cost of the carpet or paint that was already four years old when your tenant moved in. You are simply deducting for the loss of use.
The Department of Housing and Urban Development actually does give us a little bit of a guideline on what you can use as far as expected life span of the fixtures in your home. A good rule of thumb is:
- 6-8 years for carpet
- 3 years for flat paint
- 5 years for enamel paint
If those items get ruined before their time due to tenant negligence, you are allowed to deduct an appropriate percentage against the tenant’s deposit based on how much useful life that item had left in it. Make sure you are also not charging the tenant for a higher grade of repair than what was originally in the unit. Always charge like for like, and replace like for like when it makes sense for the rental.
Damage vs. Wear and Tear: What You Can Deduct
My favorite example of what you can and can’t deduct is a small hole in the wall. If there is a small hole in the wall from where the door handle strikes the wall as it closes during ordinary use, this would be an example of wear and tear that is ordinary. It would not have occurred if the door had a stopper or a wall guard behind it. If that same small hole is located in the wall of the living room where something fell over and hit the wall or where somebody bumped against the wall or threw something at the wall, then it’s damage. That is definitely something you would want to charge against the security deposit.
Keep paint and flooring records for when repairs are necessary. If a unit requires only touch-up paint and you discarded your extra paint, then really all you can charge against the tenant is the cost that it would have been to retouch the paint. You cannot charge for an entire paint job because you didn’t have the spare paint.
Always be mindful and keep a record of what is in the home. Keep records and receipts, color codes and a documentation of the styles you put in your home. This will make repairs and deductions simple and easy and fair.
Whenever you have any doubts about security deposits, there is always information available online or you can consult a local real estate attorney who can help you go through what is applicable and what is not. In the end, do not forget to put everything down in a finishing statement to the tenant when you return the balance of their deposit. You should also include receipts for anything over $126.
If you have any questions, please contact us a Civitas Property Management.