It’s been 12 months and it’s time for your tenants to move out, but you’re thinking about keeping their security deposit. This is a tricky process and sometimes it’s hard to know the correct ways to proceed.
We have compiled the following list to help with the process, starting with sending a denial of security deposit letter. Keep reading below to know the right way to go about withholding a tenant’s security deposit.
1. What is a Security Deposit?
A security deposit is the money collected by the landlord when a tenant moves into their property. Most of the time a security deposit is equal to one month’s rent.
A tenant’s security deposit can be given back if the property is equal or better than the state in which they moved in. It can be withheld to cover any unpaid rent or damages when the tenants move out.
2. Reasons to Withhold a Security Deposit
So, the tenants moved out and left you with a mess of damages. Or they broke their lease and put you out a few month’s rents.
There are many reasons to withhold a security deposit to help the landlord cover expenses. These reasons include:
- Tenants breaking the lease early
- The tenants didn’t pay rent on time
- Damages that will cost a decent amount to fix
- Cleaning costs
- Unpaid utilities
No matter the reason, if the landlord feels as if they will have to put out money to make the property livable for the next tenants they can keep the security deposit.
3. The Denial of Security Deposit Letter
As a landlord, you have decided to withhold your tenant’s security deposit. This is fine, but you will have to inform the tenants that they will not be getting their money back. You can do this by sending a not refunding security deposit letter.
To legally hold the security, you must send a letter to your tenants. This letter can state that you are holding the whole deposit or a portion of the money.
This letter must be sent within the time limit your state requires. You can find out what this time limit is by going to your state’s government page.
If the tenants owe you money beyond the return of the security deposit, you must also send a demand letter.
Before sending the letters, it’s not a bad idea to take a walk through the property a month before move out. You can take pictures of the damages and then start working on an itemized list of what it will cost to repair everything.
This list should be sent to the tenants along with your letter to show what you’ve assessed and how much it will cost you to fix.
4. The Demand Letter
If the security deposit won’t cover all the damages you may need to send a demand letter. This letter will demand that they compensate you for the damages over what the security deposit covers.
The demand letter should be sent with your initial denial of security deposit letter. If you are including an itemized list of the damages include this too.
You will want to document everything, even the letters, so if you have to go to court there is evidence.
5. Court, is it Something You Should do?
If your tenants have yet to respond to your letter or have disputed it, you could go to small claims court.
Before going to court make sure you have sent the demand letter or the denial of security deposit letter twice. The first letter should be included with the second to ensure the tenant received it.
After sending two letters without a response, going to court may be the way to go. If going to small claims court is something you’re positive about doing, then you might get your money.
This may seem like a hassle, but there are upsides to taking the issue to court. You will most likely win the judgment against the tenant. This is only if you can prove that the tenant does owe you money.
The way to prove this is to keep records of everything sent and copies of every letter you have sent to the tenant. Evidence is key to getting your money, and without it, the case may not hold up in court.
6. Tenant Disputes
If going to court already seems like a headache and all you’ve done is think about it, you can let the tenant dispute the charges.
If they respond to the letter disputing, let them. This gives them a chance to fix the damages on their own. This means the tenants fixing the property with their money and not yours.
7. Settlement Agreements
If the tenants have disputed the charges, make sure to have them sign a legal document. The document they should sign is known as a settlement agreement. This agreement can come in two formats.
Settlement in Full
One version of a settlement letter is known as a settlement in full.
This document is signed when the tenant and landlord come to a mutual agreement and the debt is fulfilled. The tenant may agree to let the landlord withhold the full amount, or they can comprise at a lower amount.
Even if a lower price is decided upon, the debt will be paid in full since a middle ground was found. This leaves you both satisfied without going to small claims court.
The second version of a settlement letter is known as without recourse.
When something is without recourse neither the tenant or landlord can sue the opposing party. This should be signed when a settlement is met to ensure that no further legal action is taken.
For example, if the landlord and tenant decide a repair costs $400 and $200 is kept from the security deposit and $200 is paid out by the tenant, then they cannot sue each other for the other’s $200.
8. Overall, is Court Worth it?
You know that court may be unavoidable if a settlement cannot be met. But, is the hassle of small claims court worth it? Keep in mind that you may get your money, but then you might not.
Small claims court is time-consuming. You need to prepare the case, organize your documents, learn how the process of court works, and attend hearings in the town which the property is located.
When getting to court it may be revealed that the tenant cannot pay for back rent or repairs due to them being unemployed or not having money. This will end with you not getting your money and most likely signing a settlement.
Also, if you didn’t keep adequate evidence and proof, the case will not hold up. You should have pictures of what the property looked like at the time of move-in and the time of move-out. Without these pictures and copies of your letters, you will not win in court.
The court fees aren’t something to overlook either. Filing fees can be less than $1,000 and there is a chance you will get them back if you win your case. If your case isn’t strong and you lose, you can say goodbye to the filing fee.
You might also need to take time off of work to attend the hearings. This will mean more money lost in the process.
Lastly, your tenant could file a countersuit. This will prolong the process as more hearing dates may be added and you might need to gather more evidence.
9. How to Avoid Sending a Security Deposit Denial Letter
If you’re a landlord that wants to avoid this whole process or doesn’t want it to happen again, there are ways to avoid it and give your renters a deposit return.
When your tenant moves in keep communication channels open. Do not be the landlord that is non-existent but be kind to your tenants and let them know you’re here to help.
Visit the house once in a while to keep an eye on the damages. Let your tenants know you do check-ins every few months to assess the property. This will help you keep an eye on things and give the tenants a chance to fix the issue.
When tenants move in, allow them to make an itemized list of damages. This will get them involved with the process and be a good reference to check at move-out time.
Now, What Will You do?
We have talked about the reasons to withhold a security deposit and the ways to inform your tenants. You now know the upsides and downsides of going to small claims court and your options on how to avoid it by settling and building a relationship with your tenants.
It’s now time to decide if settling or going to court is the right option for you.
For more tips and resources for renters and landlords check out our website here.