Security Deposit Refunds

As a professional property manager, I am committed to balancing the legal and ethical obligations to residents of rental dwelling units; providing safe and habitable housing, while simultaneously serving the owners’ financial interests. When landlord’s and tenant’s opinions do not align, conflicts often occur – sometimes, to a level of irreconcilable differences.

However, those conflicts can often be avoided through thoughtful communication, and frequent dialogue. In this article, I want to share my observations and suggestions for fostering that communication and seeking balance; even more important during this financially challenging time.

Effects of Inflation on Dispositions of Security Deposits

In my area of management, repairs of wall damage for a standard one-bedroom, 750 square foot apartment was on average $700. The same repair is now pushing upwards from $1,250 to $2,000 and that doesn’t include the arm twisting just to get your tradespeople to show up in a reasonable amount of time so you have a rentable unit! Even under ordinary circumstances, a vacating tenant might be outraged at finding $700 charged against their security deposit; condemning the landlord and manager alike for the charges in what they will likely claim to be the surrender of a unit in better condition than when they moved in. By the time the security deposit disposition has been mailed, there is little one can do but field angry calls and threats of lawsuits. 

However, landlords and tenants  alike can benefit greatly by taking proactive steps long before a vacancy, thereby mitigating unwelcome surprises. 

Communicate

It is not a novel concept that good communication leads to good relationships. By far and away, having open communication with your tenants is the best way to avoid conflict. In the real estate rental business, it begins with showing the dwelling and the written lease. Setting clear standards, communicating expectations and not making undocumented / verbal agreements is the best way to avoid disputes later on. 

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At the time of the showing, listen to the questions a prospective tenant asks and do not be afraid to answer their questions directly. Common questions may be regarding mounting art or televisions to walls; changing wall color or adding curtain rods and curtains. While wooing a prospective tenant, we may be tempted to gloss over certain policies. You are in salesperson mode and want them to sign a lease for your property. However, it is important at this time to be explicit in what your policies and expectations are. 

Sharing what certain repairs may cost is the best deterrent to unpleasant  surprises for you both. Take copious notes  because, despite your best efforts, you cannot recall every detail of your meeting after a couple years of tenancy. I also find it helpful at this time to mention that before they vacate, you will offer them an opportunity to have a “Pre-Exit” inspection to discuss how certain items will be addressed and to actually share what you find to be common damages at the time of move-out.

The Lease 

Remember, everything is great … until it isn’t. This is the time to combine your expectations and your verbal discussions leading up to a lease into written terms. To help mitigate disputes over damages, in advance, I include with all leases an addendum to explain some of the common differences between damages and ordinary wear and tear in which conflict occurs. I outline general descriptions of some common damage disputes and tenant responsibilities, and relate referenced damages to average costs of repair. By creating a written understanding, in advance and as part of the lease, we are best positioning the relationship between landlord and tenant to minimize confusion and conflict at the termination of their tenancy; when little can be done but argue over what is ordinary wear and tear vs damage. 

Every property is  different; if standard lease house rules do not include some of the unique qualities and your expectations, you must add a document to your lease to explain the additional rules. Examples might include the use of a pool, garden use and care or even city imposed watering restrictions. 

A Picture is Worth a Thousand Words

Taking the time to conduct a detailed move-in report with clear photographs of conditions, both good and bad, are in many ways the most important thing you can do to guard against security deposit deduction disputes. After a few years of residency, neither landlord or tenant will be able to clearly remember the scratch on the hardwood floor as a prior condition without a clear record and if you do end up in court, you must have proof of the condition at the time they took possession. 

After carefully comparing before and after conditions, landlords should notify the tenant in advance of any deductions. Communicating what a tenant can expect early on, and before the disposition check is mailed, may help to avoid an angered response when a check arrives that is less than what they paid in security deposit. A written explanation of why there are charges and what steps the landlord engaged in to remedy the situation are always helpful. It is very difficult to get contractors to return calls these days, much less timely, and  reasonably repair items. However, if a repair expense is large, it is a good practice to obtain at least two estimates for the work in the event you end up in small claims court. If a battle over charges takes you to court, the judge might look upon you unfavorably if your only repair receipt is from your cousin Vinny, even if Vinny gave you a sweetheart deal.

During the Tenancy

Even the most well-intentioned tenants can cause damage to a building and therefore should be reminded to not undertake measures to repair or alter your property without your advance written approval at any time during their tenancy. While repairs to holes or other alterations fall under the category of damage, I have far too often seen even the most conscientious tenants create more damage in their attempts to correct a condition. A common example are those who improperly spackle holes, using too much spackle to “patch” small nail holes. The result is even more damage to correct the repair. 

Another common mistake is when a lease calls for professional carpet cleaning at termination. Tenants often think they can “do-it-themselves” using a drug store machine only to discover they have damaged the fibers. Drug store machines use a lot of water which will matte the fibers. An addendum that restricts a tenant from conducting repairs without prior approval, and requiring them to use a professionally licensed and bonded company will help to prevent them from making such mistakes. 

Landlords can create dialogue throughout the tenancy by conducting annual inspections of the dwelling to assure it is maintained in a clean and safe condition. While conducting a routine safety inspection, you might observe potentially costly repair matters that can be addressed with your tenant while they are in occupancy. Failing to clean window sills of soot and dust can erode paint, leading to costly damages down the road. If you see the fireplace is being used, point out that use of candles and fireplaces leave a sooty residue that can lead to costly cleaning and repainting of interiors. Refrigerator coils should remain free of dust build up to avoid strain on condensers, shortening the appliance’s lifespan. Drippy faucets can drive up your utility bills but also lead to rust stains on porcelain surfaces. 

Failure to have regular conversations with your tenants about such matters will only lead to arguments at the end of their lease over whose responsibility the repair falls under.

Annual checks of smoke and carbon monoxide detectors, plumbing, appliances, doors and windows will not only assure your building is cared for and your tenants safe, but will help to avoid more costly repairs for you both down the road. 

Right to an Initial Inspection

California Civil Code 1950.5(f), requires a landlord (or their agent) to provide a written notice informing a tenant of their rights to a pre-exit inspection. This notice must be provided to a tenant when you receive a Notice to Vacate by the tenant or if you serve a Notice to Vacate upon the tenant. Failure to provide written notice forfeits the right to recover damages against a security deposit to the vacating unit. [Editor’s Note:  AB 2330 requires you to offer this “initial move-out inspection within two weeks (and not before) of the actual move-out date. Members may obtain this form on the AOA website.]

Although it is optional, tenants should always be encouraged to opt in for the inspection. There is no requirement the tenant be present, and it is the very best way to responsibly avoid security deposit deductions and disputes. It is the role of a responsible landlord to communicate to the vacating tenant that it is the last opportunity for them to make repairs, and that once the unit is surrendered, they will no longer be allowed to enter the property or initiate repairs. During the inspection, or after reviewing the results, you will have the opportunity to discuss the obligations under their lease such as cleaning requirements, damages that were visible during the inspection and methods of repair. 

I generally begin my inspection process by explaining the limitations of my inspection and ask if there is anything they are aware of that changed during their tenancy so we can discuss the responsibility and measures needed to repair it. We have all had an impulse at one time or another to rearrange our furniture to hide a carpet stain when expecting company. Naturally, we all want to put our best foot forward. Your tenants are no different. If the dwelling is still furnished or there are piles of moving boxes stacked throughout the unit, be sure to point out that a pre-exit inspections’ purpose is to discuss any concerns but that your inspection is limited to what you can  see without rearranging the furnishings. Encourage the tenant to use it as an opportunity to have a direct and open conversation about what changed during a tenancy. Common conditions are stains to hardwood from a planter that didn’t have a proper moisture barrier, or scratches from furnishings. If lighting is bad, point out that it may be difficult to clearly determine if there are damages while explaining that dirty walls can lead to the need to completely clean and repaint the interior. If slat style window coverings are in the open position, explain if you will charge to replace them if bent, broken or dirty.

The Disposition of Security Deposit

Landlords who have the urge to remodel their property at a vacating tenant’s expense will quickly find themselves in court defending an unfair practices lawsuit and possibly subject to treble damage awards. However, even the most well-intentioned landlords may find themselves scrutinized over charges that are legitimate damages. Having communicated with your tenants before and during their tenancy, you will hopefully have framed the expectations in advance of their departure, thereby avoiding some common and foreseeable damage claims. Despite all your efforts, damages often and unfortunately happen.

Even the best landlord / tenant relationship can quickly sour over a security deposit dispute so landlords should always try to weigh their expectations against that of the tenants. Did you clearly define your expectations with written lease provisions? Have you communicated what you will assess to them in advance? Do they understand the approximate value of the impending repairs? Have you absorbed any of the repair costs against the term of their tenancy  and as a measure of goodwill? 

Lawsuits, even in a small claims court, are costly to both. To be effective in winning your argument/case, you will need to provide clear evidence of before and after conditions, cost of repair, and contractual obligations. The costs of preparing for a court case result in a lot of your time preparing the file and answering the summons. By evaluating your position, as seen through a judge or  pro tem, you might be persuaded to weigh the cost of the pursuit of the claim vs the damages themselves. 

While preparing your disposition, take those factors into account. It is also helpful to add a cover letter to your disposition that illustrates the actual costs, what you absorbed, and what you might feel you are otherwise entitled to. Most tenants have never engaged in the exercise of repairing property items and therefore need to be educated on what the costs to repair are. As an example, sometimes I see appliances that were new at the time the tenancy began, now scratched or dented. Tenants rarely know in advance it is sometimes more costly to replace a couple panels than to purchase an entirely new one. If you have the original receipt for an item, include it, so there is a comparison. 

Whenever possible, a landlord should always show goodwill to the tenant, especially if the tenant has been in occupancy for a significant amount of time; covering portions of damages, especially if it can be done in the course of conducting other repairs. 

Renee Engelen is the president of the Professional Property Managers Association of San Francisco and President of HRH Real Estate Services Corporation, serving the rental industry. She has been active in Property management for almost 40 years and has owned and operated motels and hotels nationwide. HRH Real Estate Services Corp provides leasing, property management, sales and development services within the SF Bay Area.  For more information, call (415) 810-6020.