Skip to Content

Get a FREE assessment of your rental property. Start here!

Get a FREE assessment of your rental property. Start here!

Security Deposits 101

Cash Being Put into a House Piggy BankOne of the seemingly simple aspects of managing a rental property is the security deposit. However, a Manhattan Beach property owner needs to know the correct way of handling a tenant’s security deposit. Unlike a rental payment, a security deposit is not part of your investment income. In fact, there are rules that one must follow about accepting, depositing, and reimbursing security deposit funds legally. Among these are how much to charge and what you are allowed to legally and ethically use the security deposit to pay for in the event that the tenant moves out. Let us go over the basics of security deposits so you will know how to handle them properly, from receipt to refund.

Determining How Much to Charge

Before even advertising your rental, a rental property owner has to first set an amount for a security deposit. It may come as a surprise that many states don’t actually prescribe a set amount, so the landlord is left to decide for himself. However, there can be limits to how much you can charge, so you should check your state and local laws before settling on a figure. Usually, tenants are asked to deposit an amount equivalent to one month’s rent, and a cleaning deposit or pet deposit, if needed. Researching on rates other landlords in your area are charging will help in keeping your rental rates competitive. Keep in mind that high-security deposit rates could turn away potential tenants.

Handling Security Deposit Funds

As soon as you receive the security deposit funds, you will have to comply with your state rules about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Yet, others give landlords some options to choose from when it comes to where to place the funds. Regardless of where you may be living, it is wise to maintain careful records of where the funds are kept. You must also not spend the funds without a legal, documented reason to do so.

When You Can (Legally) Keep Security Deposit Funds

There are a few specific situations that allow most landlords to keep and use a tenant’s security deposit funds. The most common is to cover repairs for damage to the property beyond normal wear and tear. Broken appliances, big holes in the wall, or excessively stained carpet could all be ethical reasons for keeping a tenant’s security deposit. But, if that carpet is more than seven years old and was going to be replaced for the next tenant anyway, it would be illegal for you to withhold security deposit funds to pay for the replacement.

Some other valid reasons to keep a part of your tenant’s security deposit are cleaning costs, unpaid bills, or a broken lease, or nonpayment of rent. Bear in mind that some states don’t allow landlords to withhold security deposit funds to settle unpaid fines or late fees, so be sure to check the regulations in your location.

Security Deposit Refunds

When your tenant moves out, you have to determine the portion of their security deposit to be refunded. If the tenant has complied with all the terms of the lease, the landlord’s responsibility is to return the refundable amount of the security deposit to the tenant in its entirety. Most states have prescribed a 30-days-or-less timeframe within which the refund must be issued. Any withheld portion of the security deposit must also come with an itemized list of the repairs that were paid for with the funds.

Even when your state does not require it, you should clearly communicate any funds to be withheld to your tenant to avoid misunderstandings or legal action. This is one of the best practices of rental property management. When a property owner withholds the security deposit or an accounting record for amounts greater than the deposit longer than the allowable amount of time by law, that property owner may be asked to pay the tenant up to three times the amount of the deposit as a penalty.

In reality, security deposit issues are more complex than they seem. Because of this, a lot of rental property owners rely on expert professionals at Real Property Management California Coast. Our local Manhattan Beach property management professionals have a very good grasp of the laws in your state. They can aid in handling your security deposit, rent, as well as other interactions with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 310-535-2150 today!

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.