Security Deposit Disputes and How to Avoid Them

It all starts with being “Move-In Ready”

Rental Security Deposit disputes usually occur because of a misunderstanding between a landlord and a tenant. At the end of a lease term, the tenant is usually required to leave the property in “move-in ready” condition. This means the same condition in which they received the property, minus any normal wear and tear.

Since normal wear and tear are well defined, most landlords or property managers should have a strong grasp on what constitutes damage vs normal wear and tear.

At the end of the lease term, usually, after one to three years, the landlord inspects the property. This move-out inspection determines if the property is “Move-in ready” for the next tenant.

If the property needs cleaning or repairs to be move-in ready, those costs are paid from the previous tenant’s security deposit.

Landlord Rights and Responsibilities

Each individual state regulates its own landlord, tenant laws. In spite of this, most state laws are very similar. Most states allow deductions from security deposit funds for the following:

  • Unpaid rents
  • Cleaning to return the property to move-in condition
  • Repair for any damages that are not normal wear and tear
  • Repair or replacement of personal property, things like keys, appliances, furniture or televisions.

When using security deposit funds, the landlord is responsible for:

  • Providing the tenant with an itemized breakdown of costs for deducted items.
  • These charges must be reasonable and within industry standards.

Inappropriate use of security deposit funds can cause problems for the landlord. When security deposit disputes go to small claims court the guidelines are clear. The landlord can incur penalties for failing to adhere to the appropriate guidelines.

Avoiding Small Claims Court

Because of the dollar amounts involved, security deposit disputes that cannot be resolved without the help of a judge end up in small claims court.

Avoiding Small Claims Court with Documentation
Photo by Karen

The small claims process is very straight forward, the Judge looks at the following:

  • State Law
  • The Lease Agreement
  • Evidence:
    • Documentation of Condition before and after (photos, videos, etc…)
    • Receipts
  • Any other pertinent documentation

The rules about security deposits are clear so disputes are usually about what “move-in” condition is. The responsibility falls to the landlord to document the condition of the property prior to any new tenant moving in. 

Problems occur for the landlord if they fail to adequately document the condition of the property. In these cases, it becomes about the landlord’s word against the tenant’s word and the courts can be more sympathetic to the public. 

When a landlord fails to appropriately document the condition of a property, it speaks volumes about how they do business. There are instances when the damage to a property occurs someplace so obscure the landlord could not have been expected to document that area. This is, of course, the exception, not the rule.

Proper documentation of the property and open communication with the tenant are the best way to avoid small claims court.

Documenting Rental Property Condition

There are a number of methods available to facilitate the effective documentation of a property. Digital imaging and cloud storage have made it very simple to record and share any media or reports.

Photos are a great way to document property condition. Digital storage is cheap and photo-documenting a property is easy. Sharing photos with the tenants enables them to check out the original property condition. Just being able to see move-in photos goes a long way to heading off any potential condition disputes.

Another advantage to photographs is that in the event you end up in court, you can print before and after pictures. This saves time in court and shows that you’ve done the proper documentation.

Video has become another popular method of documenting the condition of a rental property. Lightweight high-quality cameras make this an attractive option for landlords and property managers. One advantage of video is that the person shooting the video can also comment about what they are seeing. This avoids having to make notes or guess about what the photo is about.

Like photographs, videos are easy to store and share. Videos can be more difficult to deal with in a courtroom setting. Patience can run thin while fast-forwarding or rewinding as you look for something specific. Higher quality cameras allow you to take good quality still photos from video clips. We recommend this if you need to go to court.

Virtual tours have become very sophisticated over the last five years. Matterport is a 360-degree camera that produces so pretty awesome virtual walkthroughs. This is a great way to share the current condition with the owner as well as creating a record for the tenant time of move out.

In the event we need to go to court, these virtual tours allow us to zoom into an area and take a very high-quality still photo. Our Colorado Springs Property Management company uses this method and it’s working great.

Reports are another effective way of documenting the condition of a property. Popular property management software usually comes with some type of reporting module. These modules usually come in the form of an app for a mobile device. The landlord walks through the property and takes photos of any issues. These apps have a place to write comments as well.

We have used these apps in the past and they produce a really attractive report. The only problem we have found is that they only capture current problems. We have found that it’s best to have a comprehensive snapshot of the entire property. This way if a problem arises, we have documentation of how the area looked.

Participation

Security Deposit Disputes and How to Avoid Them

A little transparency, communication, and participation can also go a long way in reducing security deposit disputes. Move outs are easier when both tenant and landlord are on the same page. One way to accomplish this is to get participation from the tenants right at the beginning of the lease period.

It’s a good idea to get the tenants involved in documenting the condition of the property right from the beginning. We like to give out tenants the opportunity to take pictures of any damage or dirt they find prior to any big furniture or appliances being moved in. If you have set up a file for move-in documentation, these tenant photos can be incorporated.

Obviously, there needs to be a reasonable deadline for these types of discoveries. But, we have found that this one simple action has really helped reduce our security deposit disputes.

Another effective action is to perform a pre move out inspection walkthrough. This is an informal walkthrough where the landlord can point out or make a list of any items that might be an issue. 

Cleaning instructions for your move-out
Click this image to download the Checklist

This gives the tenant heads up and allows them the opportunity to make the item right before they move out. If they choose not to repair or clean something found on this walkthrough we always interpret that it’s something they’re willing to have taken out of their deposit. This pre-inspection walkthrough gives them a clear picture of what’s going to happen so they don’t feel blindsided. 

Another good way to avoid any misunderstanding about expectations at move out time is to provide the tenant with a cleaning checklist. In most cases, a general checklist like this works well. If the property is really unique the landlord may need to provide more detailed instructions for the tenants.

Unexpected surprises are the primary cause of disputes over security deposits. Transparency and communication help eliminate surprises. While the tenant may not appreciate the deduction, knowing that it’s coming and why it’s coming goes a long in avoiding a trip to small claims court.

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