By Tim Zabawa
Broker/Owner Z Austin Real Estate
Security deposits are one of the most often disputed items between a landlord and a tenant.
I always wanted a plaque in my office I could point to while a tenant was sitting at my desk and show them there are two things tenants always say:
- “Oh, the place will be cleaner when I leave than when I got there I promise you.”
- “My pets never come inside.”
So I would just like to point to the plaque and say I get it.
Security deposits, all deposits in general, including pet deposits should be paid in certified funds at the time of the rental.
Security deposit should always be collect with the rental application and application fee. This method will help qualify the applicant and secure the rental process until move in. The pet deposit can be paid at move in. No personal checks are accepted until the 2nd month of the lease. Too many times tenants would write a check, you give them the key and the check would bounce. Now they are in your property and you have to rectify that situation after an occupancy as opposed to prior to occupancy.
Having the rental applicants pay the deposit in certified funds (cash, money order, bank transfer and now money apps like VENMO) at application does a couple of things. It ensures your prospects are fully vested in the rental application process. They are not just kicking tires wasting your time. If they wired you money or gave you a cashiers’ check from a bank you know they are involved because you are sitting on their money. It also is a real strong method to help qualify the prospect financially. If they can come up with the deposit money you know they have got some money and it helps you qualify them.
- There are management companies now that provide website links to facilitate the application and application fee online. If the applicant gets approved they will have 24 hours to submit the security deposit, again in certified funds. I can see the benefit of this online process in terms of the labor costs regarding accounting efforts that might be involved in having to return an unused deposit. There are some landlords that might consider the security deposit as the last month’s rent. You do not want to get the security and pet deposits tied up in a first and last month’s rent situation.
The security deposit is there to be held until the tenant has vacated and the condition of the property and all aspects of the lease have been satisfied.
Keep security deposits in a separate account
I always like to tell landlords to keep all deposits in a separate account. More specifically a trust account holding only deposits.
I have found some individual landlords, who are not professionals managing multiple properties, will just spend deposit moneys. They just stick in their bank account. They are not very good in their financial reporting and their expensing and pretty soon that money just isn’t there.
Then those landlords have to scramble at the end of the lease if any deposit money is due to the previous tenant to come up with those deposit funds. I was always on the straight and narrow. I don’t ever spend the tenant’s money. Those deposits are not your money as a landlord. Those funds are the tenant’s money that you are holding. That is really the legality of it. So hold those deposits in a separate account and don’t touch it until the end of the lease.
In Texas you have to reconcile the deposits, including the pet deposits, within 30 days of when the tenants vacated the property.
Flooring can be one point of contention in security deposits
One item we as landlords need in the lease regards flooring. We need to state the landlord has the right to have the flooring professionally cleaned as necessary at landlord’s choice and discretion. And, to be paid for by the tenant.
This revised clause replaced the clause that previously stated the tenant is to have the floors professionally cleaned and then provide a receipt to the landlord proving the floors had been cleaned. Well the tenants would then go out and rent a Rug Doctor at the local supermarket. The end effort just wasn’t good enough and the tenant would then be charged again to satisfy the landlord.
Proper move out notice and a tenant forwarding address are the two keys to the proper reconciliation and return of the property deposits back to the tenants. Without these two items, the landlord has no obligation to return the deposits.
Be ready if you need more than what the security deposit covers
You may also need to prove in court what happened to your property with respect to the reconciliation of a tenant’s deposits.
I can tell you stories where we kept all the tenants deposit money because of the condition of the property. Then, went after them in court for more money to satisfy the claim.
There was a nice lady, a single mom, she vacated the property and didn’t do some things related to full deposit return. I added up all of the charges and sued her for reimbursement. This tenant fought my suit. After a year’s delay the judge said, “Well I think we’re just going to send you two to mediation.”
So they sent us over to the UT school of law and had a couple of students, juniors, over at the law school handle our dispute of $5,000. Ultimately I had to give something up to settle the issue.
So I ended up with about two-thirds of what I asked for. And, when it was all said and done I got half. I just quit.
So in summary, security deposits are a key to good relations between landlords and tenants. Set them up right in your leases and be ready to enforce tenant payment when necessary.
Photo by Alexskopje via istock.com
About the author:
Tim Zabawa is a veteran Texas landlord and property manager. He is the owner and broker at Z Austin Real Estate in Austin Texas. Tim has been specializing in residential real estate since the mid 1980’s. He began with homeowner association management. Then, expanded his resume to vacation rentals (personal and fee based), full service property management, buyer and seller representation with special emphasis working with investors. Tim has owned and managed many proprietary income producing properties. He has successfully completed remodel and flip projects along with being a GREEN builder. www.zaustinrealestate.com