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Security Deposits – The Dos and Don’ts – By Michael A. Brennan, Esq.

Posted on 01. Jul, 2013 by in all

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As many landlords already know, the single biggest source of litigation between landlords and tenants is the security deposit. It’s no surprise, really. Tenants consistently feel they are entitled to a refund of the entire deposit because, they say, they left the apartment in “better shape” than they received it. Additionally, the code makes a relatively simple topic seem confusing and convoluted.

Landlord’s call my office on a regular basis with questions such as:

  • how much they may collect as      “security”
  • what it can be used for, and
  • the procedure for returning      it to the tenant once they have vacated the unit.

This article answers those questions, and provides insight that will keep a landlord in compliance with the law and, hopefully, out of the courtroom.

Unlike rent, which belongs to the landlord, security deposits belong to the tenants and landlords are required to follow a few simple rules with regard to collecting and returning them. According toCalifornialaw, landlords merely “hold” the deposit for the tenant and may only use it where the tenant vacated the property owing the landlord money for things such as unpaid rent, cleaning fees, or necessary repairs where the damage is caused directly by the tenant or one of his or her guests.

Security Deposit Deductions

There are limits on the amount a landlord may collect as a security deposit. For example, a landlord may collect a maximum of two months’ rent for an unfurnished apartment and three months’ rent for a furnished apartment. To be clear, when I use the phrase, “furnished apartment”, I am not talking about an end table and a bed left behind by the former occupant! I am referring to a fully furnished apartment.

The most common question I am asked by landlords is what the deposit may be used for. The answer is simple: it may be used to collect money owed to the landlord by the tenant after the tenant has vacated the unit. Specifically, the law permits a landlord to withhold money for:

1) repairs to the unit for damage beyond ordinary wear and tear

2) cleaning the unit

3) unpaid rent and

4) replacing lost or stolen personal property such as remote controls, keys, etc.

For example, a landlord may use the deposit to clean the unit after the tenant has moved out, provided such cleaning is necessary to return the unit to the same condition in which it existed at the time the tenant moved in.

In order to protect themselves against frivolous lawsuits by unscrupulous tenants, many landlords use strategies such as specific clauses in their leases whereby the tenant acknowledges they received the unit in good condition or a move-in inspection sheet that the tenant signs when he or she receives the keys. In addition to adding those methods, landlords should consider taking pictures of each room of the unit, and having the tenant date and sign the back of them at the move-in inspection. That way, you can introduce the lease, the move-in inspection sheet, and the pictures as evidence of the condition of the unit at the time the tenant moved in, should they decide to take you to small claims court for the return of their deposit after they move out.

With regard to using the deposit for “unpaid rent”, the law specifically allows landlords to deduct any amount owed for unpaid rent from the security deposit. This applies in several common situations. For example, where the lease requires the tenant to give thirty days’ notice of their intent to vacate, yet the tenant pays only half of his rent on the first of the month claiming he is leaving by the 15th, (thereby providing only 15 days’ notice) a landlord may withhold from the tenant’s deposit the balance of the rent owed for the remaining 15 days. In certain circumstances, landlords may also use the security deposit to recover funds owed by the tenant for “late fees” or “non-sufficient funds” charges.

Written Notice of Inspection

One of the most common mistakes made by landlords is failing to notify tenants in writing of their right to an inspection of the unit before they vacate. In other words, where either party notifies the other of their intent to terminate the tenancy, (or where the tenancy is ending by the terms of the lease) landlords must provide their tenants a written notice of the tenant’s option to request an inspection of the unit. Where the landlord provides the notice, but the tenant fails to request the inspection, the landlord need not conduct one. Keep in mind though, where the tenant does request the inspection, it must occur no earlier than two weeks before the tenancy ends and the landlord must provide the tenant with an itemized list specifying any money the landlord intends to withhold from the deposit and the reason for doing so. As of January 1, 2013, the notice to the tenant is required to include language notifying the tenant of their right to reclaim their personal property after vacating the unit, subject to certain conditions. Landlords should keep in mind that such notice to the tenant of his or her right to an inspection is not required where the tenancy ends due to unpaid rent or the tenant’s breach of some other covenant.

Returning the Deposit

Once a tenant vacates the property, the landlord has twenty-one days from the date the tenant moves out to provide the tenant with an accounting of their deposit. It used to be that the landlord was required to send the accounting to the last known address of the tenant indicating the original amount of the deposit, any amounts used by the landlord for money owed (whether for unpaid rent, cleaning fees, or damage to the unit), and the remaining balance, if any. While that is still the case, as of January 1, 2013, landlords and tenants are now permitted to mutually agree that the landlord can provide a copy of the itemized security deposit statement (and its accompanying documentation such as invoices, receipts, etc.) by sending it to an e-mail address provided by the tenant. Additionally, landlords may also deposit any remaining portion of the security deposit directly into a bank account designated by the tenant.

Where the landlord uses money from the deposit to make repairs or clean the unit, the landlord must provide the tenant with copies of invoices or receipts showing the charge incurred. However, this does not apply where the total of repair and cleaning comes to less than $125.00. In situations where the landlord uses less than $125.00 of the tenant’s security deposit for cleaning or repairing the unit, the landlord is not required to provide the tenant with documentation.

Where money is withheld from the tenant’s security deposit for work done by the landlord or his or her employee, the statement must describe the work done, the time spent on it, and the rate charged (which must be “reasonable”). (Larger management companies cost-out cleaning time at $20 per hour and this has been accepted by Small Claims courts.) This amount, however, can be challenged if you actually pay an employee minimum wage and then charge the tenant differently.

However, where the work was performed by an outside vendor, such as a handyman or contractor, the landlord must provide the tenant a copy of the bill, invoice, or receipt for the work, which must contain the name, address and telephone number of the individual or company that did the work.

Another frequently asked question is what a landlord should do if they are unable to get the necessary work done to the unit before the twenty-one days expires. Where repairs may not reasonably be completed, or the receipts may not reasonably be obtained within the twenty-one day period, a landlord is permitted to deduct a “good faith estimate” of the charges he or she anticipates they will incur, and include that estimate in the tenant’s itemized accounting. In that situation, the landlord is still required to provide the contact information of those who will perform the work. Furthermore, he or she must then provide the tenant with a “finalized” accounting within fourteen days after the work has been completed and/or he has obtained the receipts.

Follow the Rules

You might be asking yourself, “What happens if I fail to comply with the rules regarding security deposits”? Landlords who fail to comply with the twenty-one day accounting requirement loose the right to withhold any money from the security deposit.  Furthermore, the tenant may bring a civil action against the landlord in small claims court and the landlord may have to return the entire security deposit, as well as an amount equal to two times the deposit, should the judge find the landlord acted in “bad faith”.

Most landlords have faced situation in which the tenant informs the landlord that they intend to use their security deposit as their last months’ rent. Of course, tenants often do so in order to save the money necessary to move into their new residence. I suggest you never permit a tenant to use their deposit for the “last month’s rent”. The unwitting landlord who does so often finds his or her “kindness and understanding” rewarded by a damaged apartment and the need to use money from their own pocket to get the unit fixed, ready, and back on the market. Remember, a “security” deposit is exactly that: security for the landlord to recover funds expended for cleaning, damage, or unpaid rent.

Concluding Remarks

What does all of that really mean to you as a landlord? Simple: landlords can, and should, collect security deposits from tenants to be used for things such as damage to the unit, unpaid rent, and/or cleaning fees. When the tenant vacates the unit, the landlord is required to account for the deposit within twenty-one days by providing the tenant with an accounting and receipts for any money withheld.  The accounting should be mailed to the tenant’s last known address or, if mutually agreed to, emailed to the tenant. A landlord’s failure to follow those rules could be exposed to a lawsuit in which he or she could be required to return the entire deposit to the tenant, along with two times the amount of the security deposit as a punishment. However, landlords can insulate themselves from that situation by implementing a few strategic policies (such as those mentioned in the beginning of this article) and following these simple guidelines.

The foregoing information is presented and intended to address the topic(s) covered above in a general nature, and not as specific legal advice.  Specific situations and their facts should be presented to your attorney for review.  The Brennan Law Firm is one of the premier landlord-tenant law firms in Southern California, representing landlords exclusively in evictions, judgment enforcement, and other landlord-tenant matters. Mr. Brennan is a frequent speaker and contributing author for AOA, and may be reached at (626)294-0500, or toll free at (855)285-2230. Please visit our website at www.MBrennanLaw.com for more information.