Security Deposit Accounting 101
What is a Security DepositA Security Deposit is money that is collected by the landlord as a hedge against damages and unpaid rent at the end of the tenancy. A Security Deposit may never exceed twice the monthly rental value of the property. Keep in mind it doesn't matter how you label it, if its money that's being collected in excess of the first month's rent, its a Security Deposit.
For example. Rent is $1000 a month. Your agreement asks for First Month's Rent, Last Month's Rent, a Pet Deposit of $500 and a cleaning deposit of $600. The Security Deposit violates the statute by $100.
The other problem with calling the Security Deposit something like "Last Month's Rent" is the common misconception by tenants that they can use that money for their last month's rent. They cannot.
Safest method is to calculate how much security you need, assign a dollar figure to it and call it a security deposit.
Use of the Security Deposit During TenancyThe Cliff notes on this practice should simply read 'DONT" Your rental agreement should cover any damages that may arise during the tenancy and contain provisions within the agreement where the tenant becomes responsible for payment of damages they cause. The most common example is plumbing issues caused by flushing things down a toilet that have no business being in a toilet (Read 3 year old and small toys)
With this approach your safety net remains intact and if the tenant fails to pay, you simply serve a three day notice to cure covenant or quit. If they then fail to pay, evict them AND THEN use the security deposit to cover that expense.
When the Accounting becomes dueThe major dispute between landlords and tenants most often arise in the context of the security deposit accounting and the period of time the deposit takes to reach the former tenant. For example, they "vacate" on the 10th but don't surrender keys until the 15th. In accounting for the security deposit and remaining out of small claims court, earlier is always better.
Thee are times when extra time may be required, but understand, using the date to obtain extra time is always a risky undertaking. Earlier is better.
The accounting must be mailed by first class mail (meaning certified mail is improper) or hand delivered to the former tenant within 21 days after the tenant vacated the the premises. (CC 1950.5(g)(1)) To address the anticipated "I never got it" allegation from your tenant, obtain a certificate of mailing. They cost about $1 and provide you with proof of mailing should that issue arise.
What is "Ordinary Wear and Tear"Simply put, things wear out. Carpet and paint are perfect examples. The warranty on the carpet dictates when it's life is over and the same is true of paint. Really good paint lasts perhaps 5 years, cheaper paint 3, and the average carpet has a ten year life. To determine what wear and tear is keep in mind, tenants are permitted to wear and tear your carpet.
A 10 year carpet is put into the unit before the tenant takes occupancy. They move out 12 years later (If all tenants were like this there would be no need for this forum) The carpet is trashed, full of holes and could never been cleaned. Under these circumstances the tenant used up 10 years of carpet life over a 10 year period. This is ordinary wear and tear. Change the circumstances to 4 years and the carpet is trashed, This tenant used up 60% more carpet life than he was entitled to. This is a situation where there is excessive wear and tear that the security deposit can be applied to
Suggested Accounting MethodMost accountings that get challenged are almost exclusively in two columns. The first column says what task was undertaken, like replace carpet. The second column says how much was charged, say for this example, $1000.
This approach will guarantee a challenge in small claims court by the tenant. Use three columns instead.
Using our four year tenant from section 4 as an example, the common method would be (1) Replace Carpet (2) $600. Using a three column method however provides information to the tenant that most are unaware of. They have no conception as to how much it takes to actually place a unit back onto the market. With the three column method (1) Replace Carpet (2) $1000 (3) $600.
Be sure to include everything, including those items that aren't charged, like changing locks, or painting, things that should be done after the end of each tenancy anyway. This will reflect the true cost to tenant. It took $3,000 to clean the unit, they were charged $1,110, Hmmmm.
Receipts Are a MustThe statute requires receipts be provided to the tenant in the event over $125.00 of their deposit is used for cleaning and repair. If you or your employees perform the work, the statement must include the hours spent and what the reasonable hourly rate for the work performed is. I shudder when I see receipts from landlords that provide for $1,200.00 in cleaning costs (2 employees, 1 hour each) Doing this will almost assure that a judgment will enter against you for the excessive charges and the last thing a landlord wants or needs is a judgment.
Damage is extensive and I need more timeThe fact that the repair cannot be performed within 21 days is addressed by statute. The accounting is due on the 21st day. Period. If the repairs are extensive, do the accounting based upon the receipts in hand and the estimates for the remaining repairs. Deduct that amount from the security deposit and do your accounting, preferably as suggested in Section 5.
Done in this manner, you now have an additional 14 days to complete the work. When the work is completed that estimates were used for, provide a copy of the final paid invoice to the tenant within this 14 day period.