Security Deposits: Common and Costly Mistakes

Security Deposits: Common and Costly Mistakes

Security deposits and many of the issues surrounding them are the topic of the article this month by veteran property manager Corey Brewer.

By Cory Brewer

In my role as a general manager, disagreements over security-deposit resolutions cross my desk more often than most other issues.

I’ve lost count of how many times a former tenant explained that they, “left the home in better shape” than they found it, while at the same time I have had numerous conversations with our landlord clients about how they are being too aggressive with their charges.  It can be a contentious issue on both sides of the table.

We all hope that a tenant treats the rental home with respect, and that we can refund most – if not all – of  security deposits quickly after they vacate.

On the landlord’s end, timing and accuracy are extremely important when dealing with security deposits.

The law in Washington state currently prescribes that a landlord must mail a statement specifying the basis for withholding of security deposit funds within 21 days of the tenant vacating – which is not  always the last day of the lease.  If a tenant were to move out two weeks early and return the keys, then the 21-day clock would start ticking two weeks sooner.  Mailing the statement to the tenant’s last known address is also crucial, so if they have provided this to you before your statement has been mailed out you need to make sure you’re mailing it to their new address.  A simple error (delivered late or to the wrong address) can be very costly in that it could a) eliminate your ability to keep any of the deposit at all, and/or b) entitle the tenant to financial damages above and beyond the full return of their deposit.

Security deposits and pet deposits

Pet deposits (particularly in Seattle) have added a new wrinkle to this process in that a landlord cannot apply pet-deposit funds to cover “people damage.”

For example, a security deposit of $1,000 is collected plus a $250 pet deposit.  At move out, there is no pet-related damage, but it is discovered that the garage door is damaged due to the tenant hitting it with their car. If the door repair costs $1,500, the landlord may apply the $1,000 security deposit toward this repair, but must refund the $250 pet deposit to the tenant.  Ultimately the tenant would owe an additional $500 in damages, not $250 (because you can’t keep the $250 pet deposit for people damage – at least not without the tenant’s consent).  So, in this situation you are simultaneously sending them a refund check and a bill for the balance of the garage door repair cost.

Every penny of security-deposit funds withheld to cover damages, cleaning, or any other unpaid amounts (back rent, late fees, utility bills, etc.) must be supported by an invoice (or copy of tenant ledger indicating delinquent amounts owed).

In addition, the withholding of funds must be supported by clear move-in and move-out inspection reports. Back at move in, you were to have completed a property-condition inspection report and had the tenant sign it in acknowledgment.  At move-out, you would review those notes and make a comparison to the current condition of the property to establish a basis for charging the tenant for damages.

While photos are not legally required, they are highly recommended – at our brokerage, we take more than 100 photos to supplement the majority of our move-in reports.  The photos can be your saving grace if you ever end up in small-claims court arguing over the validity of your charges.

When it comes to security deposits: document, document, document!

Finally, a landlord may not charge a tenant for “normal wear-and-tear,” which can often be difficult to define.

Best practice is to supply the tenant at lease signing with a list of examples of things that would be considered damage vs. wear-and-tear to set the expectation.

A landlord also may not charge a tenant for any improvements post-tenancy.

For example, if a vinyl floor was damaged, a landlord may not take advantage of the situation by charging the tenant to install porcelain tile.  The landlord may still replace the floor with porcelain tile, but may only charge the tenant the equivalent of what it would have cost to replace it with like-kind vinyl.  Depending on the damaged item, depreciation must also be considered – certain elements of the property (appliances, hardwood flooring, carpet, paint, etc.) have their own general “useful-life” spans.

So for example, if a tenant dents the door of a 25-year-old refrigerator, the landlord cannot charge the full cost of a brand new one to replace it.  The word “reasonable” is found littered throughout RCW 59.18 of the Washington state Residential Landlord-Tenant Act, and if you find yourself in front of a judge you will have to come up with a “reasonable” explanation for your actions.

So to recap on security deposits – when your tenant vacates you’ve got to act quickly, keep a clear paper trail, and make sure that you are being reasonable.  Good luck!

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