Collecting tenant security deposits appears to be one of the simplest components of rental management. After all, it’s merely a specific sum of money that the landlord believes will assist cover any damages that may occur during the occupation, right?
Unfortunately, it isn’t quite that straightforward. And One of the most common mistakes a landlord can make is to take the tenant security deposit for granted. While each state has its own set of rules for dealing with a tenant security deposit. In this section, we will go over some of the most important considerations. Such as how much the landlord may want and what scenarios a security deposit normally covers.
Tenant Security Deposit Limits
The purpose of a tenant security deposits is to refund the landlord in the event of damages or other losses, such as nonpayment of rent. While the first order of business is to figure out how much money to collect for a security deposit from a tenant. This number will determine by state law and varies greatly across the country. And the balance will compile a useful guide on security deposit restrictions by state. But you should consult with your own legal advice because rules in this area change frequently.
There are no restrictions on the quantity of the security deposit that a landlord can charge in about 20 states. However, landlords in certain states have restrictions on charging up to one month’s rent for a security deposit. However, some regulations may allow a landlord to charge a higher security deposit to cover pets, increases liability risks, or property alterations.
Some states have different levels for the deposit. Some states, for instance, set the maximum security deposit for renters at two months’ rent for unfurnished homes and three months’ rent for fully furnished rentals. On the other hand, some states set the rules depending on the age of the driver. So tenants under the age of 62 may charge up to two months’ rent as a security deposit, but those 62 and older only have to pay one month’s rent.
Depositing the Security Deposit
A landlord should maintain correct financial records for a rental business, including the tenant security deposit. Again, many states have laws governing how to handle money. Some of them require the landlord to hold the tenant security deposit in an interest-bearing account with a local bank.
In some places, for example, the landlord must give the tenant interest to add to the security deposit on the anniversary of the lease agreement. Or when the lease will expire. Furthermore, if a tenant is more than 10 days late paying rent for any month. So, the landlord doesn’t have to pay the interest for that month, unless the lease already says there will be a late payment fee. Some places let landlords keep the security deposit in three ways, including putting it in a bond that pays interest.
Although most states aren’t as difficult. It’s still good bookkeeping practice to retain the tenant security deposit in a separate bank account (many states, at the minimum, require this).
Uses of a Tenant Security Deposits
There are five general reasons why a landlord may retain all or a portion of a tenant’s security deposit. Again, this will vary per state, but here are the fundamentals:
- Property damage: This is not the same as “wear and tear.” The following are some types of damages that could be deducted from a tenant’s security deposit:
- Multiple or large holes in the walls
- Big stains, burns, or holes in the carpet
- Broken appliances, doors, or windows through negligence
Normal wear and tear that is not covered by the security deposit could include:
- Faded paint
- Carpet was worn from regular use
- Dents in walls from door handles
- Cleaning charges: A tenant’s security deposit can’t be used to pay for the cleaning costs of leaving a rental property. However, if a renter leaves behind a lot of trash or furniture that the landlord has to pay to get rid of, those costs may be allowed.
- Nonpayment of rent: A landlord may take all or part of a tenant’s security deposit to settle unpaid rent.
- Tenant breaches the lease: Depending on the terms of the lease and state law, if a tenant breaks the lease, the landlord may keep all or part of the security deposit.
- Outstanding bills: Nonpayment of rent, utilities, or other costs related to the rental unit can be taken out of the tenant’s security deposit.
Returning the Tenant Security Deposit
If any or all of the tenant security deposits are owed to the tenant. When they meet the lease terms, the landlord is responsible for giving the money back. Again, each state has its own rules about how long a landlord has to return a tenant’s security deposit.
For example, in some states, a landlord must restore a security deposit within 14 business days following the end of a rental. Furthermore, if any deductions from the deposit have been made. The landlord must give an itemized list detailing the cause for each deduction and the amount withheld. Other states need an itemized list but allow 30 days before returning the security deposit.
Remember that you must have a good reason for keeping all or part of the security deposit if you do so. Then, a tenant goes to small claims court to file a lawsuit. And if a landlord illegally keeps a security deposit or doesn’t follow other state laws (like sending the deposit back within the time limit). So, they could be held responsible. In some states, for example, a tenant may get the full amount of the security deposit that was wrongfully kept, plus up to $250 in fines and court costs.
Conclusion
A landlord who wishes to avoid a squabble over the tenant security deposit, therefore, should look into his or her state’s rules. It’s also a good idea to do a complete move-in and move-out inspection, that has documentation like photos and is signed off on by the tenant. While, a thorough paperwork trail will aid in the support of any claims concerning a tenant security deposit, particularly in the event of damage.
Therefore, security deposit management should be simple. But it all too often becomes confusing and, on occasion, unpleasant. On the other hand, if you’ve been considering hiring a property management company. There could be a strong motivation to do so.
Having a skilled professional on your side can pay enormous monetary advantages while also decreasing stress in situations like this.
