While every landlord knows that collecting a security deposit is an essential part of protecting their investment when renting properties out, not every landlord knows how to handle withholding some of that money for repairs when a tenant is moving out.
Sure, it’s your right as a landlord to keep some of that money for those repairs, but it is also legally essential for you to give the tenant the proper documentation of what you are keeping and why. If the tenant has reasonable suspicions of how much you are keeping, they can even take you to court.
To avoid this type of miscommunication disaster, it’s essential to use a security deposit disposition, also known as an itemized security deposit deduction form. These forms keep your withholdings on the book, and that is incredibly important.
Let’s learn more about this form and give you a free security deposit settlement statement you can use when your next tenant moves out.
A Table Of Contents For Security Deposit Disposition
- What Is A Security Deposit Disposition Form?
- When To Use A Security Deposit Statement Form
- Allowable Deduction Information
- Security Deposit Disposition Letter Sample
Let’s get started today with learning about what a security deposit statement form, also known as a disposition, is.
This form is used by landlords to let tenants know what amount will be withheld from their security deposit, what that money will be used for, and when the tenant can expect to get their remaining deposit (if any) back. The form also serves to find out where the tenant wants the remaining deposit to be sent to.
Using this itemized form is essential for letting the tenant know exactly what they are going to be penalized for and how much those repairs are going to cost. If the tenant wants to dispute any of the items outlined in the form, this document gives them the opportunity to talk over the disagreement with you.
After your tenant moves out, you will want to immediately do a move-out walkthrough with the tenant or another third-party there to witness the walkthrough. During this walkthrough, be sure to take detailed notes about repairs that need to be made.
Once you know what work may need to be completed for tenant-caused repairs, get an official estimate about the cost of repairs. You need this information on file in case the tenant disagrees about the costs.
Once you have this information, it’s time to write up the security deposit statement.
The itemized security deposit settlement statement is going to outline all of the information that you gathered and relay it to the tenant in an official and organized way. We will cover the exact way to write one of these statements below!
Timing of This Return
When working on this type of property assessment, don’t forget that you have a limited time period during which you must return the tenant’s security deposit or send them a security deposit statement form.
The exact amount of time that you have to let the tenant know about the status of their security deposit is dependant on which state you live in, but most states give you around one month to finalize the cost of repairs and return the remaining security deposit to the tenant.
If you keep the deposit for longer than you are legally allowed to, this creates the risk of a tenant being able to sue you for the security deposit money – and more. It’s very important to keep on schedule when you are putting this document together so you are not digging yourself into an expensive hole!
It’s important for landlords to know what is an allowable deduction when it comes to the security deposit. You cannot simply hold onto more money because you want to make upgrades to the property; you must have valid reasons for withholding anything from the security deposit.
Specifically, the deposit can only be used to cover damage beyond normal wear and tear that was caused to the property by the tenants or their guests. Normal wear and tear includes things like chipped paint, scuffed walls, or a run down carpet.
On the flip side, you are allowed to use the security deposit to repair the following:
- Carpet stains
- Broken windows
- Broken locks
- Broken doors or door frames
- Clean-up fee (to move-in condition)
- Pet damage clean up
- Repairing a clogged drain
- Broken appliances
- Broken furniture
Many states, like California, give a clear list of what can and cannot be withheld from a security deposit.
Most states also allow you to cover any unpaid rent or taxes that are the tenant’s responsibility with the security deposit. Before you make these types of deductions, however, you will want to double check the law. Security deposit laws are held on the state level, and they may differ.
Avoiding Future Damages
There’s nothing more aggravating than finding out when your tenant moves out that the property is going to need weeks, if not months, of repairs done in order to be in livable condition again. While most tenants will take pride in caring for the property, some simply do not care and will cause all kinds of intense damage.
If you’ve ever been through a bad move out situation, the chances are high that you’ll do anything you can to avoid dealing with that kind of situation again.
The best way to reduce the risk of needing to use a security deposit to cover damages to the property is to choose the best tenants. By properly screening every tenant and choosing only those that meet your standards, you will be less likely to encounter this type of problem again.
Now that we’ve covered the basic background information that all landlords should know about this disposition, let’s talk about the details of what goes into the letter and why it must be included.
First, take a close look at our sample letter:
|Security Deposit Disposition
As you can see, this form is fairly straightforward, and the information that you need complete is clearly labeled. Why you need to fill it out, however, is just as important as filling it out!
Date & Basic Information
Start the form off with the date that the form is being completed and other basic information such as the tenant name and the property address.
While filling out this identifying information may seem like overkill if you’re going to hand deliver the form, it’s absolutely necessary. You want there to be no doubts about who the form is for, what it is about, and when it was written.
While you do not need to be overly worried about the risk of a court case when handling security deposits, it’s always better to be as cautious and thorough as possible when dealing with legal documents.
Type of Property Agreement
Next, there is a simple checklist that you need to select from. This list mentions a few different types of rental agreements (month-to-month, etc.), and you should simply check off the applicable type. This section is for documentation purposes.
Disposition of Deposit
This is where we get into the specifics of what is being withheld from the deposit and why. There is a lot of information you need to accurately enter in this section, so be careful while you fill it out.
First, record the amount that was received as a security deposit. This information should also be in the lease agreement that both parties signed, but adding it here can help with ease of understanding and clarity.
In this section, you should list all of the deductions that will be made and the cost of repair for each itemized deduction. Our form divides these deductions into the following categories:
- Repair Damages
- Necessary Cleaning
- Replacement or Repair of Furnishings
- Other deductions
Once you’ve clearly laid this all out, you’ll be able to total up the cost of repairs.
If the security deposit will cover the deductions, you will need to use the “Balance Due Tenant” section below. If the security deposit will not cover the deductions, you will need to use the “Balance Due Tenant” section below.
Balance Due Tenant
This section should only be used if the security deposit covers the entire cost of repairs.
In this case, the following information should be listed:
- How much of the security deposit remains after the repair costs
- If any interest has accrued on the security deposit (depends on state laws)
- What check number will be on the check paying the tenant back the remaining amount
Be very clear about all of this information, and be sure to send the check to the tenant in a timely manner to avoid any penalties being charged to you for lateness. Usually, you need to return a deposit within 21 days or one month depending on your state’s laws. In Texas, for example, you have 30 days.
Balance Due Landlord
This section should only be used if the security deposit does not cover the entire cost of repairs.
If the security deposit was not big enough to cover all repairs, you would need to collect additional money from the tenant as the costs of repairs are their responsibility. The amount that they owe should be listed here so that they can pay you in a timely manner.
If the tenant will not pay you, you will likely need to file suit in a civil court. Once you win that case, a judge will award you the documents that you need to work with a collector or garnish the former tenant’s wages until you get your money back. Otherwise, you’ll simply need to cut your losses.
Use The Security Deposit Disposition Form Correctly
Do you have a better understanding of how this disposition form works now? We sure hope so!
This form is a crucial one when you are not returning the entire security deposit. Even though your tenant is moving out of the property, it’s still very important that they are kept clearly informed about what is going on with their security deposit.
After all, it is their money that you are holding, and they have a right to be clearly informed about its status! For that reason, filling this form out completely and accurately can help to ensure that both parties are satisfied with the resolution of your rental agreement.