Security Deposit Return Challenges
One of the most difficult tasks for a property manager and/or owner can be refunding the tenant’s security deposit to everyone’s satisfaction. Any property manager (or owner) 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, leading to the dissatisfaction of the departing tenant. However, steps can be taken to optimize a successful reconciliation between all parties.
Step 1 - "Start before the tenant moves in.
This may sound like an odd approach, but common sense steps, in the beginning, will increase the odds for success when the tenant moves out.
- First, we prepare the unit in a clean condition when the tenant moves in. For example, it is really difficult to charge for painting when the walls were scarred and marked when the tenant moved in. If the property is in good condition, it is reasonable to expect the same condition when the tenant moves out.
- We document the property condition 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.
- We conduct a thorough tenant screening. 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 to maintain a good rental history and credit; they also want their security deposit back!
- We complete a detailed rental agreement that complies with state laws and executes it to ensure that the tenant fully understands and signs to what is expected of them during the 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, we itemize repairs and details of all unpaid monies and issue a statement to the tenant at the last known address. This needs to be completed even if the tenant owes you money.
- Failure to issue a security deposit statement and/or fund within the timeline of state law can lead to larger financial loss.
Step 4 – Use common sense if there is any dispute regarding the security deposit.
- If the tenant challenges the deductions, it is important to evaluate if it is worth the dispute. Sometimes, even a small compromise will settle the matter. Remember that 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.
- When necessary, we consult an experienced 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 makes the process easier.
Mendell Gosnell, CPM®
Oregon Licensed Principal Broker
Centurion Real Estate Management, LLC