Security deposits are simple, right? If the tenant trashes your rental, you keep it; if they leave it in good shape, you don’t?
Not so fast.
From varying state laws to the difference between damage and “normal wear and tear,” to pet issues and more, security deposits aren’t nearly as simple as most landlords think.
Defining “Normal Wear and Tear”
While state laws differ widely on security deposit refunds (more on these below), one rule remains pretty constant. Landlords can deduct the costs of repairing “damage caused by tenants,” but not costs caused by “normal wear and tear.”
So what’s the difference?
Broadly speaking, normal wear and tear is what one would expect from a conscientious, typical occupant. The occasional scuff on the walls, small nail holes, carpets showing their mileage. Normal wear is what happens over time, as thousands of footsteps fall on the same few square feet.
Damage, however, is usually caused by a single incident, rather than gradual wear from daily living. A hole knocked in the wall, a burn in the carpet, a broken bathroom mirror.
But what about, say, a water stain on the carpet? A white wine stain? A red wine stain? The line between destruction and wear and tear can be blurrier than a Sasquatch photo. Ultimately, if the landlord keeps the deposit and the tenant takes them to court over it, it just comes down to who makes a more convincing case to the judge.
State Laws: Maximum Deposits, Holding, Interest & More
Each state has its own rental laws regulating every part of security deposit collection and return. Most states have a limit on the maximum amount that landlords can collect for security deposits, usually in the 1-2 months’ rent range.
Beyond maximums, many states and cities require that landlords hold the security deposit in a separate bank account and not touch it. Worse, landlords must often pay interest when they return the security deposit, sometimes far higher than what the bank pays them.
Then there are the rules about how quickly landlords must return the security deposit. Usually within 2-4 weeks, the landlord must either refund the security deposit in full or provide a detailed written breakdown of all deductions.
Check both your state laws and any city-specific laws, as increasing numbers of cities have decided to flex their muscles with these laws (here’s a list of summaries for all state rental laws).
What About Pets & Security Deposits?
Over the last decade, landlords have increasingly turned to pet deposits, pet fees, and pet rents, to protect against losses due to pet damage.
First of all, what’s the difference?
Pet deposits are refundable, if the pet does not damage the property. Pet fees are non-refundable, to cover the extra wear and tear caused by having a pet live on the property. Pet rent is additional monthly rent due each month, for each pet.
In most states, pet deposits are considered part of the security deposit, and covered under the same restrictions. Thus, if the maximum deposit in your state is 1.5 months’ rent, and the security deposit is one month’s rent, the landlord can only collect up to another half month’s rent for the pet deposit. A few states have little or no stated regulations or laws regarding pet fees and deposits, however.
Document, Document, Document!
If landlords want to successfully withhold the security deposit at the end of the lease, they need to be able to prove the tenant caused the damage in question. That means impeccable documentation, including plenty of photographs and tenant signatures.
Before the tenant moves in, the landlord or their agent should walk through the rental property with the renter and document every scuff, every scratch, every hole. They should photograph every room from every angle, and all of the exterior. Then both the landlord and renter should sign the move-in condition report.
At move-out, the landlord or agent needs to repeat the same process with the renter, once again with signatures. Tenants who sign to acknowledge that the rental unit is in worse shape after they moved out aren’t likely to win if they challenge you for deducting from their deposit.
If renters do take you to court, you can show up with dozens of printed photographs and original signed documents. That goes a long way in proving your case.
While most states’ laws tend to favor renters, landlords do have one advantage with security deposits: the onus is on the renter to bring a dispute. The ex-tenant must go through the hassle of filing a motion in court over security deposit deductions, which is a headache most renters will only take on if truly aggrieved.
Comply with state and local laws, document the exact condition at move-in and move-out, only deduct money for actual damages, and enjoy a smooth, court-free experience managing your rental.
Brian Davis is a co-founder of Spark Rental, an online rental automation hub and education resource for landlords and property managers. A landlord himself with 15 rental properties, Brian is also a weekly columnist for BiggerPockets, and has served as a rental expert for MSN.com, Realtor.com, Trulia.com and dozens of other publishers.