I attended a landlord seminar today that was hosted by an attorney that represents tenants.  It was a fascinating look at landlord issues, but with a tenant advocate teaching it.  He spoke about many of the loopholes and other places that landlords have a tendency to not follow the law or the letter of their leases and how the tenants can win lawsuits or defend against evictions.

There was quite a discussion about security deposits and I thought it made sense to lay out some of the gotchas and give you some reminders on how the process is supposed to work.

• If possible, take pictures of the unit prior to the tenant moving in and store them on your computer.  The attorney explained that often the “move-in” form is simply filled in with OK and a line through the entire column for each room.  He stated it was easy to defeat this in court as meaningless.  Pictures before the move-in will give you considerable ammunition if you get pulled into court by the tenant for the amount withheld from the security deposit.
• A landlord has 3 weeks from the date that the tenant moves out or the receipt of the tenant’s new address, whichever is later, to get the security deposit or security deposit disposition letter in the mail.  That is the law, but the attorney recommended that even if you do not know the new address of the tenant, you should still put the letter in the mail to the old address.  If that letter forwards to the new address, great.  If it is returned, put that in your file so you can show you tried.
• Even if at the end of the lease or tenant’s occupancy, there is nothing left of the security deposit, you must still send a written disposition letter.  Even if the tenant owes you 3 months of rent, do not neglect this.
• If you fail to send the letter or security deposit within 21 days, the tenant can take you to court.  If they win, you owe them double the entire security deposit, plus interest (without any deductions for missed rent or damages), plus $500 as  a penalty.  For example, if the damage deposit was $1000 and the tenant lived there 1 year, the amount would be $1000 + $5 + $1000 + $5 + $500 = $2510.  That is a lot of money!
• You can only deduct for physical damages beyond “ordinary wear and tear”.  So what is wear and tear?  Although that is somewhat subjective, repainting and cleaning carpets is NOT considered excessive, normally.  If they are really worn or dirty, you could make a case that it is excessive damage (and I have seen excessive).  Make sure to document this fully.
• When you put amounts on the security deposit disposition letter, make sure to use real numbers.  A friend of mine was sued by a tenant for the damage deposit money withheld.  The tenant won the case.  The judge said that if my friend would have had receipts he would have easily won.  Do not put round numbers for supplies and repairs.  Did you really spend $20 on cleaning supplies?  Was the carpet cleaner really $60?  Use the exact figure.  It may help convince the tenant that you have receipts and you may not end up in court.  Use a time sheet if possible to account for your time if you do the work.  Do not round the hours.
• Before you start any work or cleaning, take pictures of all the problems.  Then you can use those pictures to compare to the before photos if you get to court.  As a side note, if your tenant leaves the property a mess and they are on rental subsidies, like Section 8, send the after pictures to their case worker.  It may help the next guy (and you can get some secret pleasure out of getting the tenant in trouble).
• Do not always assume you are keeping the security deposit.  I know some landlords that are keeping the deposit despite having a good tenant.  They find anything they can not to give it back.  Be honest and fair.  Otherwise you may end up in court.
• Effective August 1, 2010, the time you as a landlord are required to store your tenant’s left over stuff has been reduced to 28 days.

Following the letter of the state law and the details in your lease is the proper way to keep yourself out of court fighting over the disposition of security deposits.