Year after year, the return of the security deposit is the area where most conflicts and disputes occur.
Obviously, there are never any complaints if I give back the full deposit, which is my desire, but many times it’s just not possible.
Even though I always itemize the damages, provide pictures and receipts, and deliver the refund within my state-regulated time limit, I still sometimes feel like I’m dealing with the children from Village of the Damned.
Preventing & Handling Deposit Disputes
1. Actively communicate.
Throughout the tenancy, keep the lines of communication open, especially if there’s any sign of property damage or if you start to have any concerns about your tenant’s activities.
2. Give your tenants a say in the matter.
Allow tenants to document the move-in condition. Then be sure to verify their report for accuracy.
3. Give your tenants a chance to remedy issues.
Give your tenants an opportunity to repair damage they caused (assuming they still have an active lease and rightful access to the unit).
Not only does this give them a chance to remedy the issue before you have to charge them, but it will give you favor with the courts.
4. After move-out, take pictures.
Take plenty of photos, videos, and written notes to document the move-out condition. It’s hard to argue with pictures.
If possible, use the same move-in inspection form to document the move-out condition so that you have side-by-side notes.
5. Itemize deductions and send receipts.
Send your tenants an official, itemized list of deductions with copies of the pictures and receipts.
Don’t withhold any deposit money that you don’t have a receipt for, or isn’t documented in the lease as unpaid rent or fees.
Make sure your math is correct and don’t charge for your time or labor (unless you are a professional tradesman).
6. Give them a chance to refute the charges.
It’s only fair. Give them a chance to refute any charges and provide an explanation. Perhaps the missing shower head is in the linen closet!
7. If they dispute, make them sign a settlement agreement.
Whenever any of my tenants argue over the deposit deductions, I always make them sign a settlement agreement before giving them any money.
This settlement agreement ALWAYS includes the phrase “Settlement in full, without recourse.” These five words don’t sound like much, but they sure do pack a punch.
Let’s break it down:
Settlement in full, without recourse
“Settlement in Full”
This phrase simply means that any debt or claim has been fully satisfied.
If a landlord wants to withhold $300 for a broken window, and the tenant argues the claim, they may agree on $200 as settlement in full for the window damage.
Even though the window still cost $300 to repair, and the tenant only paid $200, the debt is considered fully satisfied.
Cornell University Law School defines it as: “In litigation, someone without recourse against another party cannot sue that party, or at least cannot obtain adequate relief even if a lawsuit moves forward. Someone completely without recourse cannot sue anyone for an alleged injury, or else cannot obtain any relief even if lawsuits are filed.”
In laymen’s terms, neither the landlord nor tenant can change their mind about the window settlement. The landlord can’t sue the tenant for the extra $100, and the tenant can’t sue the landlord for the $200 that was withheld from the deposit.
Settlement in full, without recourse is a formal way to say: “This settlement is final, and you can’t change your mind.”
How to Settle Deposit Disputes
When a tenant argues a claim on the security deposit, both parties have two options: work it out, or go to court.
I’m always in favor of trying to resolve disputes in lieu of court, and I think the best way to do that is to verbally negotiate a settlement and then put it in writing.
Attached below is my settlement agreement template. By having your tenants sign this agreement, you put the nail in the coffin of any future lawsuits. Please have your attorney review this before using it.
NAME (Landlord) and NAME (Tenant) agree to the following:
- PROPERTY ADDRESS (Premises) was leased from LEASE START DATE to LEASE END DATE.
- A security deposit was paid on MM/DD/YYYY in the amount of $AMOUNT.
- Tenant vacated the Premises on MM/DD/YYYY.
- On MM/DD/YYYY, Landlord notified Tenant of various itemized deposit deductions, totaling $AMOUNT.
- Landlord and Tenant agree to withhold $AMOUNT as settlement in full, without recourse from the security deposit for all damages itemized in the aforementioned document.
- Tenant relinquishes any additional claims for the deposit being withheld.
Signature (Landlord) Date
Signature (Tenant) Date