Security deposits are an essential tool for every landlord when it comes to protecting their property. A security deposit is a pre-set amount of money that a tenant pays to the landlord at the start of the lease. It helps landlords when a tenant is unable to pay rent or causes damage to the property.
When security deposits aren’t appropriately managed, it can cause financial woes to the landlord. As a landlord, you should know about your state's laws on security deposits. In this article, we’ll cover essential tips to help you manage them efficiently.
As a landlord, you should always stay updated on the landlord-tenant laws in your state. Different states set limits on how much money you can collect from a tenant in the form of a security deposit. Charge too much from your tenant, and you’ll be liable to return the amount or even more.
In some states, you may need to keep your security deposit in a separate interest-bearing account. You might also have to pay the interest you earn from your account to the tenant. Most states except Louisiana, West Virginia, and North Carolina will ask you to keep a written accounting of the deposit. This means you need to give a signed security deposit receipt to your tenant.
Landlords must make sure to keep all necessary security deposit rules and records in the lease agreement. Here is a list of things you should include:
Discuss every clause in your agreement with your tenant, so both of you have clarity. Specify what classifies as “normal wear and tear” and “tenant damage.” You never know what clause could hold you up at court. However, if you’ve screened applications well, a good tenant will respect your lease terms and conditions.
Did you know that walk-through inspections are mandatory in some states? It’s a good idea to get in the habit of checking the condition of your property before handing it over to the new tenant. It can save you from unnecessary lawsuits. Here’s a to-do checklist to help you out:
Providing your tenant a security deposit invoice helps keep a record of payments, and is also an essential requirement in some states. Your receipts must include the amount of the security deposit, the name and address of the bank you’ll deposit and, and the interest rate (if it’s mentioned in your state’s laws).
The amount of time to return your tenant’s security deposit differs in every state. Read your state’s laws on returning deposits thoroughly before your lease ends to avoid last-minute hassles.
Make sure you do a thorough move-out inspection and document it. If you’re withholding or returning a partial amount to your tenant, give them a detailed invoice list on why you’re keeping the money. You can legally withhold the deposit if your tenant breaks the lease or fails to notify you before moving out.
Remember that your tenants are entitled to keep their security deposit if you haven’t followed the laws of your state or city. They can file a claim in a claims court to recover their money.
Tenants can sue you for things like failing to mention bank details in the receipt. Always keep a personal checklist of what you need to do before, during, and after a lease term.
Protecting your security deposit is simple if you make sure you are carefully documenting everything along the way. These simple tips can help you avoid pitfalls and make you an efficient and reliable landlord.