The security deposit is the tenant’s money you collect for security against any damages that could theoretically occur during a lease period. It’s important to remember that it is the tenant’s money. It is not money belonging to the landlord or property manager. Typically, you will collect the security deposit at the time of lease signing. The amount depends on many things, including the tenant’s background check. If something negative shows up, it’s known as an adverse action. Some landlords wonder if they should charge extra rent, such as first and last month’s rent, in addition to the security deposit. We always recommend that you increase the deposit if you need to, rather than asking for the last month of rent because you don’t really know when that last month will be.
Once you collect the security deposit, you will need to put it in a bank account. You must stipulate in the lease where the security deposit will be held. State the bank location and the name of the financial institution. Most people will use a non-interest bearing account to hold the security deposit. If you put it into an interest bearing account, you will need to give a percentage of that interest back to the tenant.
Security deposits are released at the end of the leasing period. The release can be involuntary, such as when a person is evicted and you immediately begin putting together your security deposit claim letters, or voluntary. Usually, a voluntary return of the security deposit begins when the tenant hands in the keys and lets you know the property has been vacated. The trickiest situations are when people abandon properties. This happens when you do not hear from the tenants and you cannot get a hold of them to figure out what is going on, and you’re not sure if they are out of the property or not. In cases like these, we always recommend contacting a property manager or an attorney for help.
If there is no damage at all and you won’t be making any kind of claim against the security deposit, you have to get it back to your tenants within 15 days of their vacancy. If there is a claim for damage, or you need to spend some money on cleaning or repairs after they move out, you have up to 30 days to send them a claim letter. Always send those letters by certified mail. You will have a record of when you sent it and if the person refuses to sign for it, you also get notification of that. The renter cannot say you didn’t send the claim letter.
Please do not hesitate to contact us at Realty Services Property Management if you have any questions on security deposits or how to proceed when your tenants move out. We’d be happy to talk with you.