Mistakes Landlords Make with Security Deposits

Security deposits are a vital but often neglected part of being a landlord. Security Deposits can offset the financial burden caused by damages due to a previous tenant when done correctly. Security Deposits can also cover missed or past due payments. We have put together a list of five common mistakes landlords make and how to avoid them. 

1.   Failing to understand the law. 

Understanding the laws in place when it comes to security deposits can be a real benefit. Each state has specific regulations. A landlord has only 21 days in California until the security deposit must be fully refunded for residential tenants. Failure to do so often results in a lawsuit on behalf of the tenant and eventually leads to a small claims court appearance. There must be a follow-up letter explaining why or an itemized bill displaying the deductions taken to pay for damages. This letter is often referred to as a disposition letter. 

2.   Not using security deposits properly. 

The basics of a security deposit are common knowledge, but you would be surprised how often landlords misuse security deposit funds. Deductions from a security deposit can be taken for multiple reasons. The first is severe damage done by the tenant during their time using the property or leaving it to maintain the property in a presentable state. The second reason is to cover unpaid rent, lastly, for absolutely needed cleaning services and not for upgrading appliances. Typically, the security deposit cannot be used for any other charges unless agreed to in writing. 

3.  Overcharging. 

Charging for the wrong reasons is another instance that could cause you to end up in  small claims court. Often Landlords associate normal wear and tear done by merely living in a home with damages. When this happens, tenants might be motivated to pursue legal action. If a court determines a landlord has misused security deposit funds, the landlord may be forced to repay the amount with additional penalties. 

4.  Lack of documents. 

Having the right documents can go a long way. First, a lease agreement sets the basis for your relationship with your tenant. A lease agreement should be as specific as possible to avoid any misunderstandings. A written security deposit policy should identify reasons why you may retain their deposit within the lease agreement. Documentation of these violations along with any money transacted on behalf of it is crucial. 

5. A poorly screened tenant will cost you. 

Lastly, at the root of most security deposit issues is the lack of screening a potential renter thoroughly before becoming a tenant.  A proper screening  abides by laws protecting tenants and lets you know who you are renting to. A tenant who was not adequately screened will cost you money by giving rent late, neglecting and damaging the property, and more.