7 Tips for Preventing Security Deposit Disputes

Written on September 1, 2014 by

Security Deposit DisputesYear 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.

“Without Recourse”

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.

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Topics:
  Security Deposits

15 CommentsLeave a Comment

  • Matt

    If my landlord sells his property what happens to my security deposit? What is the old landlords obligations?
    Thanks

  • Tony

    I rent a condo in Maryland, where, if my understanding of the tenancy law is correct, I have to deposit return the security deposit with 2-3% interest at the end of the tenancy, assuming no damages. However, it is practically impossible these days to find an interest bearing account including CDs that provide this. I end up paying out of pocket the few extra dollars that I can’t get anywhere. Any suggestions for how to find a better account or deal with this interest requirement?

    • Lucas Hall

      Hi Tony

      It is tough to find a bank account that gives 3%! The closest I’ve been able to find is Ally bank (ally.com)

      Unfortunately for Maryland landlords, you just might have to build it into the cost of doing business… raise the rent a little to cover the cost.

      3% is high considering the actual rates now. VA recently got rid of the interest requirement completely. Hopefully, MD will follow suit.

      I hope that helps. Here’s a guide we wrote on MD rental laws: https://www.landlordology.com/maryland-landlord-tenant-laws/

      Please know that I’m not a lawyer not is this legal advice.

  • Jessica

    My landlords didn’t give us our itemized list at all and are 2 weeks late with the deposit. We finally got ahold of them and confronted them about the deposit.

    Being as they didn’t give us an itemized list within my state regulations. They have to either give my full deposit back or we take them to court.

    They have decided to give us our deposit back. I meet them in a few days.

    How can I word all of this in a settlement agreement to ensure that I (Tenant) am now safe from being charged for anything.

    I have read my state laws and being as they didn’t provide a itemized list at all it will be very very difficult for them to take us to court for anything.

    But I want to protect myself. The house was left in good condition as well.

    • Lucas Hall

      Hi Jessica,

      If your state laws say that they lose any claim to the deposit if they don’t provide an itemized list, then they really can’t say anything later either.

      I suggest you cite the statute (in full) in your agreement, and make sure it says “settlement in full without recourse”, which means that it’s “final”.

      But please know that I’m not a lawyer, nor is this legal advice. That’s just what I would do if I were in your shoes.

  • Kim

    Should the lease list any items that may be charged and deducted from the security deposit i.e. professional cleaning, carpet cleaning or replacement, plumbing issues that come up with new tenants that move into a property that was previously occupied by tenants? Although tenants are provided an itemized list of charges, they still complain about deductions. What can a property management company do to prevent going back and forth with a former tenant regarding charges they do not agree with?

    • Lucas Hall

      Hi Kim

      Yes, I strongly suggest you list any fees and possible reasons why a landlord could deduct from the deposit. But be broad, so you don’t pigeon-hole yourself.

      The 7 things listed in this article all help to reduce disputes, but the most important is communication. Make sure “anything other than normal wear and tear” is in your lease, but also specifically call out things like “light bulbs, carpet cleaning, smoke detector batteries, excessive damage, or negligence to maintain” are all listed. Then, you are simply referring to the lease, and the lease becomes the “bad guy”.

  • Jennifer Shephard

    Can the Landlord take out or refuse a deposit for a personal item (with sentimental value) that comes up broken but no proof of how it got broke?

  • Jackson

    My former Texas tenants moved out a few weeks ago. It is my understanding that I have 30 days to return their deposit. However, there were several deductions that need to be made. They are refusing to accept the deductions as well as to sign a settlement agreement. How do I proceed, while still following the law?

    • Lucas Hall

      Hi Jackson,

      Here’s the statute: http://www.statutes.legis.state.tx.us/Docs/PR/htm/PR.92.htm#92.104

      Why are you having them sign a settlement agreement? You can proceed without it. Just mail them a check (certified mail if you want proof), with the itemized list of deductions.

      If they disagree, they can file a small claims lawsuit against you, which takes significantly more effort. Just make sure your deductions are validated.

      I hope that helps. Please know that I’m not a lawyer, nor is this legal advice.

      • Banthia

        If the tenant sells off items of sentimental value without asking can I deduct MORE than the actual amount of the item itself to account for the sentimental value?

  • Shawn

    Former tenant is disputing security deposit deduction for garage door repair and smoke detector service call/battery replacement. At the final walk-through was informed the garage door was not working so I did not consider it normal wear and tear and assessed a minimal fair market value fee of $70 for repairs. A few days prior to walk through requested a service on the smoke detectors and it was determined batteries were needed and not properly installed/reinstalled by tenant. I passed on both the service fee and actual costs of battery replacement based on lease stating this was their responsibility. They are disputing both claims saying they were my responsibility, how should I proceed?

  • Eva

    We had a tenant in our rental for 7 years. She took care of it the first 6 years and then her daughter, son-in-law, twin babies and dog joined the lease the last year. We did a maintenance visit at a 6 months and found a number of items not being taken care of..like the dog tearing up the yard and gashes in the walls. Mentioned to tenant and they said they would take care of it. This was verbal, and not written up. At the end of the lease, the damage had grown to pet stains/smell, and other damages. (They didn’t go to walk-through, but I took lots of pics.) Sent them the costs of repair (over the damage deposit) and they are taking us to court to get all of the damage deposit back saying these are all “wear/tear”. Is wear/tear hard to win?

  • Daren

    I’m a Colorado landlord. My original tenant was moving out and asked if I would retain her $1100 security deposit for her daughter to move in under a new lease. Her daughter renewed several leases with me until she married and moved out at the end of her lease. It has always been stipulated in each lease that her mother (the original tenant) would be the one receiving any security deposit refund…not the daughter.

    I emailed both the daughter and the mother a list of deductions within the 30 days according to Colorado law. It’s now past 30 days. The daughter acknowledges receipt of my email, but the mother (who paid the security deposit) claims she never received my email and is taking me to court. I feel I made an honest effort. Thoughts?

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