Tenant Problems: Not Taking it Personally
By Matt Williams, Founder, Williams Real Estate Advisors
The Security Deposit Refund Quandary
Just out of college, I rented a little studio apartment in Brentwood less than five miles from my new job. The building’s owner was kind, thoughtful and took care of all my maintenance requests. One day though, I remember waking up exhausted, feeling like one does after they have spent the night swimming. As it turns out, the hot water line under my unit had broken and had been leaking for over five days. I called the owner and told her something was wrong. She discovered the broken pipe and fixed it. However, the massive mold smell coming into my unit through the floors was more than I could take. I informed her that my health was at risk and told her I would be moving out immediately. I still remember her words on the phone, “this is a business and you will owe me for the 30-day notice”, meaning I would not get my security deposit back. Well, I did eventually move out and to my surprise I eventually received a portion of my security deposit a couple months later. Apparently, the owner had to leave the doors and windows open for over a month to air out the unit. It was at that point I think she must have realized I was telling the truth about the odor in my unit and she refunded a portion of my security deposit.
Most tenants in my situation would not be so understanding these days, especially when it comes to refunding their security deposit. While some owners just return the entire security deposit to avoid a hard conversation or even a dispute, which in turn neglects their rights, other owners charge everything and anything possible and wind up keeping a large portion, or sometimes the entire, security deposit, often neglecting the tenant’s rights. The truth is that both the owner and tenant have rights here. The owner has the right to recover damages made to the unit beyond normal wear and tear. Likewise, the renter has a right to know what is being deducted and making sure that only appropriate deductions are being taken. These days, an owner should assume that a tenant is prepared to at least ask why deductions where taken. In this article we will address the basics of security deposit refunds, deductions, general rules you should know and, of course, best practices to follow.
The truth is that not every tenant will be getting a refund of their entire security deposit. Deductions for painting, damages beyond normal wear and tear, and cleaning are the major three deductions property owners typically take. Additional deductions can include unpaid maintenance bills due to the tenants’ actions, unpaid rent and a handful of miscellaneous items.
Painting. Regarding paint, most owners will often assign an expected life of three to five years. For example, a three-year pro ration of paint, which is what my management uses, a tenant that has lived in the unit for a year would only be obligated to pay for two-thirds (2/3) of the cost of painting, which would be deducted from their security deposit. For two years, they would be obligated to pay one-third (1/3) of the cost of painting to be deducted from their security deposit. And, finally, if the tenant has lived there for three years, nothing would be deducted from their security deposit towards the cost of painting. The “wild card” on painting is if the tenant painted any part of the apartment, such as walls, ceilings and /or cabinets in a different color. In the event a unit requires more than a single coat of paint after applying spot prime, an owner has the right to bill back and to deduct from a security deposit the costs of applying extra coats of paint and primer so that the unit may be returned to its original condition and color. The best approach is to require that the tenant return it back the way it was before they painted.
Wear and Tear. When it comes to wear and tear, not every repair is chargeable to the tenant. For example, a closet door where the screws are coming out on the top brackets and causing them to operate poorly, would not be chargeable. On the other hand, a hole in a door that requires it to be changed, is beyond normal wear and tear and could be chargeable. When it comes to evaluating repairs as to whether they are beyond normal wear and tear, it is best to be objective and reasonable. A simple question to ask is “even though I wouldn’t like it, would I view this charge as reasonable if someone charged me for it?”
Cleaning. Cleaning is almost always a must, especially with the new precautions over COVID. In my experience, tenants are always better off letting the owner clean an apartment unit. They can hire a cleaner but more times than not, the tenant’s cleaner will miss hard-to-reach places like ceiling fans, and not-so-obvious spots like ovens, behind the refrigerator, etc. In these instances, the tenant will be charged for what their cleaners missed on top of what they paid themselves, thereby incurring two cleaning bills when they could have just had one bill.
Other Deductions. There are other kinds of deductions that can often “build-up” during a tenancy. These deductions can be tied to maintenance issues that were caused by the tenant. For example, a drain line that is cleared and upon the owner’s receiving the bill, it states that there was hair or a foreign object in the line. Since this was caused by the tenant, it can be charged back. The tenant may refuse to pay the bill during their tenancy but upon returning the deposit, the owner can deduct the expense from there. Just note that the tenant may dispute these types of charges. A future article will look at tenant disputes over security deposit deductions.
Security Deposit is NEVER Rent. It is a widely held belief among tenants that their security deposit can be applied to their last month’s rent. However, in fact, tenants owe rent through the end of the term of the lease – the security deposit is not rent. If a tenant is on a month-to-month lease term, they would owe rent through the end of their 30-day notice. It is important that as an owner, you never encourage this erroneous belief for at least two important reasons. First, applying the security deposit to the last month’s rent means the deposit may be insufficient to cover charges that are the responsibility of the tenant, including those discussed above. On the other hand, applying a few days’ rent against a security deposit may not be a problem if sufficient deposit is left to cover other deductions. An example of this is the tenant who gives an owner notice on the 5th of the month and leaves on the 4th of the following month without paying for days 1 through 4 in the following month. So long as the tenant paid the full month in which they gave the notice, it is reasonable to apply the final four days of the following month against the deposit. Second, another reason to avoid applying security deposit to last month’s rent is, what happens if the tenant does not move out? In this event, you may either be required to evict for non-payment or require your tenant to replenish the security deposit. Rather than deal with this confusion, it is best to avoid the issue entirely and NEVER apply a security deposit to last month’s rent, other than perhaps just a few final days. Upon a tenant vacating the unit, an owner has full right and is encouraged to take any unpaid rents out of the security deposit.
Some Additional Thoughts. There are a few other issues to touch upon related to security deposit refunds such as keys, carpet cleaning and interest. Keys are easy to track. Should a tenant move in and be provided with keys and remotes, they are obligated to return them upon move out. Should the tenant not return the keys and/or remotes, a charge should be made to their deposit. Carpet cleaning has become less of an issue these days, with most owners going to hardwood floors. But if there is carpet, the tenant could be charged a carpet cleaning fee or to replace the carpet based on a five-year prorate. When it comes to interest on a security deposit, the rules vary city-by-city throughout California. If interest is required by local ordinance, this can be credited back annually during the tenancy or can be credited back upon the tenant’s return of deposit. (Interest is required to be paid annual under the City of Los Angeles’ Rent Stabilization Ordinance.)
It is also important for an owner to remember to take the following actions in relation to security deposits. First, security deposit and first month’s rent should always be provided in a cashier’s check or money order. Personal checks should never be accepted. Should a tenant move in and the check bounces, an owner may find themselves in need of hiring an attorney to file a costly and time-consuming eviction proceeding. Second, promptly upon receipt of a tenant’s 30-day notice to move, make sure you give the tenant written notice of their right to inspection. This is the tenant’s opportunity to cure any problems that may exist within the unit. Should the tenant choose not to exercise their right to a walk-through, that is completely fine. All an owner needs to do is let the tenant know of their right to participate in a walk-through. Third, receipts for any work that is completed and charged back to the tenant must be included with the security deposit refund accounting since the tenant has a right to confirm these charges and the work that was done. Fourth, the security refund sheet, invoices, and either check or request for money must be mailed before or on the 21st day following the date in which a tenant vacates the unit. These four simple steps are great best practices for any owners to use in relation to security deposits.
Even though we owners may be a long way off from their days of living as renters, it is helpful to take a step back and remember the days when you anxiously awaited a refund of your security deposit. There are owners that will bill everything and anything back to the tenant, but that is only a recipe for trouble down the road. Tenants will almost always follow-up and question these deductions. They will ask “why” and have a reasonable expectation of getting a reasonable explanation. Or should the owner be unreasonable in their response, the tenant will likely challenge the owner, including by filing a lawsuit in small claims court. No one wins in these situations. Also, no matter what an owner deducts, it is important to be professional and have a “solid” explanation and support for deductions taken against a security deposit. It is the best way to reduce tenant conflicts over charges against a security deposit.
This is only a brief breakdown on best practices for handling refunds of security deposits. It does not encompass all the nuances and exceptions associated with this subject, but it is a good starting point for owners. Additional resources owners can use are their lease clauses related to security deposits, “California Tenants – A Guide to Residential Tenants’ and Landlords” e-book, and of course, the Apartment Association of Greater Los Angeles, for any questions they may have.
Matt Williams is the principal of Williams Real Estate Advisors, Inc. which is a full-service property management company that has approximately $150,000,000 of multifamily assets under management throughout Southern California. You can reach Mr. Williams at email@example.com.