Retain or Return a Security Deposit?

As soon as your tenant moves out, you need to immediately inspect your property! Don’t delay your inspection! Some states only give you so much time to notify the tenant if you determine it necessary to retain some or all of their security deposit. Not to mention, there may be some damage present that could actually get worse as each day goes by, if not repaired. So get back into the unit as soon as possible after your tenant has vacated…

If you do indeed discover the tenant has left any part of the unit in disrepair, you have every right to retain all – or at least a portion of – their security deposit, as was defined in the lease agreement. In order to exercise your right to retain, you need to prepare a letter that itemizes the damage(s) and the cost(s) to repair or replace. Be prepared to back up the damage with pictures, estimates and/or receipts from contractors and vendors. If you performed the work yourself, then be sure to bill no more than an industry accepted hourly wage for the labor portion – not what you think your time is worth.

When finalizing your letter, it’s always recommended that you keep the language as cordial as possible. You may even want to start off by thanking the tenant for their stay before you segue into the security deposit. There is no reason to “stick it to them” – just maintain an amiable (but still professional) approach, so they feel as if there was an effort made to return all of their funds, but – unfortunately – there was some new damage that was not present at the time of the initial “assessment.” Any reasonable tenant should understand the discrepancy because they personally assessed the condition of the property and were encouraged to notate anything out of the ordinary. Of course, if the tenant is unreasonable, don’t expect them to agree with anything you say – just have everything documented and leave it at that.

If your calculations reveal that there is money left over, a check for the remaining funds plus any applicable interest should be enclosed with the letter.

A special note about interest-bearing accounts: If you happened to receive any interest from the security deposit, some states require that you share some of the interest received (if not all of it) with the tenant.

When you finally finish your letter, make a copy of it and put it in the mail right away with some type of USPS delivery confirmation service – there is no reason to hold on to it, unless you are unable to have a professional assess the condition of the property due to natural disasters or other catastrophes. And if that is the case, then you need to at least notify the tenant that you intend on making a claim against the security deposit – but you don’t yet know how much until you are able to receive an estimate. Some states may even require you to simply return the whole security deposit and bill the tenant later – good luck!

**IMPORTANT: If the contractor or vendor you are used to dealing with is unable to provide a timely quote, you must then find a different one so you can maintain your compliance with your state’s law – there is usually no tolerance for delaying the returning of a security deposit, except maybe for natural disasters and catastrophic events.

In either case, both types of letters need to be mailed to the tenant as soon as possible (as a general rule, notifying the tenant within 10 days of moving out will keep you compliant anywhere in the U.S.).

If there is no damage to the property – and the tenant did their part by patching any nail holes, cleaning the carpet, bathrooms, kitchen, etc. – then it is strongly recommended that you reciprocate by returning the entire security deposit, along with a thank you letter. These kinds of tenants are a true treasure and need to be reminded how much their efforts are greatly appreciated.

As you would expect, each state does have its own required timeframe within which security deposits must be returned.

Posted in Moving Tenants In and Out.