Property Management Blog

Reconciling Security Deposits

Reconciling Security Deposits

One of the most difficult tasks for a property manager and/or owner, can be refunding the security deposit to everyone’s satisfaction. Anyone is elated when they can issue a full refund because the tenant has left the property in excellent condition, complied with their rental agreement, and paid their rent in full. Unfortunately, there are times when deductions must be made for loss of rent and damages. However, steps can be taken to optimize a successful reconciliation between all parties.

Step 1 - "Start before the tenant moves in". This may sound an odd approach to take but common sense steps in the beginning will increase the odds for success when the tenant moves out. 

  • First, the unit is properly prepared in a clean reasonable condition for when a tenant moves in. For, example, it is really difficult to charge for a heavily soiled carpet when it was not professionally cleaned prior to occupancy. If the property is in good condition, then it is reasonable to expect a like condition when the tenant moves out.
  • The condition of the property is documented before the tenant moves in. With this completed at the beginning of the tenancy, there are grounds for deductions if there are tenant damages at the end. It may not always be possible to avoid litigation so it is very important to have complete records to defend keeping any or all of the security deposit.
  • A thorough tenant screening is completed. Starting with the right tenant in the beginning eliminates most problems regarding a security deposit refund at the end of the tenancy. A good tenant will care for the property while renting, complete all required payments, and leave the residence in good condition. Good tenants want good rental history and credit - they want their security deposit back. 
  • A detailed rental agreement that complies with state laws is executed to ensure that the tenant fully understands and signs what is expected of them during tenancy and when they move out. Proper documentation details what rent is due until the end of the tenancy, when rent is to be paid, and what condition is expected of the property when they move out. The rental agreement also clearly states the amount of the security deposit paid by the tenant.

Step 2 - “Continue important functions during the tenancy.” This can avoid legal issues where the tenant feels they have the right to use the security deposit for rent or repairs while they are still renting.

  • Complete necessary repairs in a timely manner.
  • Maintain accurate maintenance records.
  • Keep accurate financial records on rent, late fees, and any other funds collected from the tenant.

Step 3 - “Complete the move out and refund of the deposit in a timely manner.” It is important to remember that settling the security deposit in a timely manner will be to the benefit of all parties.

  • The property condition is properly documented and completed with the tenant whenever possible.
  • A refund and/or statement of condition detailing the deductions is issued in accordance with state laws.
  • If circumstances dictate that the security deposit has been forfeited, itemized repairs and details of all unpaid monies are itemized and issued to the tenant at the last known address. This may take longer, but needs to be completed as quickly as possible.

Step 4 – “Use common sense if there is a dispute over the security deposit.” 

  • If the tenant challenges the deductions – evaluate if it is worth the dispute. Sometimes, even a compromise will settle the matter. It is important to remember that a legal action can be more costly than simply refunding the amount challenged.
  • Most tenants do not dispute the loss of their security deposit when they owe more than they paid. If they do, we consult an attorney, and discuss your options with you based on their advice.

Handling a security deposit is not always easy. By taking the right steps from the beginning of the tenancy until the end, we find the success rate much higher.

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