Almost all property owners like to have a security deposit from their tenants. This deposit is used for repairs if the unit is damaged by the tenant. The money is kept in a separate account and returned at the end of the tenant's lease. However, the security deposit has always been a contentious issue between tenants and property management or property owners.
In certain instances, where the property owner has not returned the deposit, the court has awarded twice the amount of the deposit as damages to the tenant. Therefore, the property management has to be very careful while handling matters concerning security deposits and here are some pointers that can make this task easier.
Know State Laws
Property management should be clear about the state laws regarding following aspects:
- §How much amount can be collected as a security deposit
- §After receiving such a deposit, how fast it should be deposited in the required account
- §Whether any interest has to be paid to the tenant, and how such payment should be made
- §Whether any reports need to be generated regarding the deposits
When it is a residential property, all state laws are clear about equal treatment, and being nondiscriminatory in charging these deposits.
Do not Categorize it as a Type of Rent
Security deposits have to be returned to the tenants at the end of their lease provided they have not caused any damage. Therefore, they should be treated as a deposit and not categorized under rent.
Charging Less is not a Marvelous Idea
Some property managers think of charging a lesser security deposit than what is legally allowed, in order to attract more tenants. However, this is a big risk, and it can cause many issues in the end, which can cause more loss compared to having lesser tenants. By charging an adequate security deposit, property management can:
- Weed out prospective tenants who are financially unstable
- Create a hedge against default in rents
- Create a protection against unannounced departure of tenants
Open Separate Trust Account
The bank where the amount is deposited, should know the money is for escrow or trust funds. Such funds are not forfeited, even when the property owner or property management is encountering legal problems. Secondly, even when the state laws permit mixing the security deposit amount with a rent account, it is always better to open a separate account, since that will keep the amount safe from accidental spending.
Record it on Video
A security deposit is the most contested issue, and therefore it would be wise to take a video recording of the condition of the unit when the tenant is moving in, since this provides strong evidence if the tenant takes the matter to court. In fact, the tenant can be provided a copy of the recording or a link to the video, which will help in resolving any issues, even before they start.
Inform the Property Owner about Policies
The property managers should inform the property owner about the policies adopted regarding security deposits, since there should not be any inconsistencies in this regard, when issues arise. And they most certainly will!