As a landlord, it’s important to know the legitimate (and not-so-legitimate) reasons for withholding all or part of a security deposit from a tenant.
What can a landlord deduct from a security deposit?
Your tenants pay a security deposit before moving in, which can give you peace of mind if you need to pay for expenses or damages when they move out.
Sometimes tenants don’t leave the place spotless on move-out day. In more serious cases, they might leave behind broken windows, an unidentifiable sticky liquid in the fridge, or a clogged shower.
A landlord or property manager can only withhold deposit monies for actual damages, whether material or financial. This means you can deduct money from a security deposit if a tenant owes you past-due rent and fees or has caused damages beyond normal wear and tear.
Of course, rental laws vary by state, but some general statutes regulate the basics, such as:
- Whether you must put the money into an interest-bearing account
- If you can commingle security deposits with your personal or business accounts
- What you can or can’t deduct from a tenant’s security deposit
- The time frame for returning the deposit or written notice of why you aren’t returning all or part of it
Let’s talk about some situations when you might deduct and withhold security deposits—and how to handle them.
Scenario #1: Breaking the lease
You can’t automatically keep a deposit just because a tenant abandons the lease or breaks a rule in it. Again, you must have actual damages to offset your claims against the deposit.
That said, if a tenant leaves behind unpaid rent, utility bills, late fees, and parking fees, you could withhold some or all of the deposit. A lease is a contract, and if a tenant breaches it, you can take them to court if they don’t pay.
Practically speaking, unless the debt is multiple thousands of dollars, going to court is often more trouble than it’s worth. Even if you receive a judgment, you still have to collect it from your former tenant. Most landlords opt to keep the security deposit and look for a new tenant instead.
Scenario #2: Abandonment and unpaid rent
If your tenant abandons their lease and stops paying rent, you almost certainly will need to make a claim to withhold money from their deposit, because it could take weeks, even months, to find a replacement. Your previous tenant would still be responsible for rent during that time, and if they didn’t pay, you could withhold the deposit to offset the unpaid rent and take them to court for any remaining balance.
Note: if you keep a month’s worth of rent from the deposit but don’t actually have a vacancy that is a month long, then you would need to give back any overlapping funds. You can’t “double dip” on the rent.
Since most security deposits cover one or two month’s rent, it’s best to start eviction proceedings as soon as possible if the tenant makes no attempt to pay.
If you’re not familiar with the eviction process in your area, hiring an attorney is wise. It’s not okay for a tenant to forego paying the final month’s rent under the assumption you’ll apply the security deposit to it—so don’t use the deposit for last month’s rent.
Scenario #3: Normal wear and tear
Every property suffers normal wear and tear, and you can’t deduct that basic upkeep from the security deposit. If the tenant cleans regularly, then the landlord is responsible for normal wear and tear.
Normal wear and tear includes:
- Carpet and rug wear
- Sun-faded wallpaper or paint
- Nail holes in walls from picture hangings
- Bathroom mirror desilvering
- Appliances that no longer work (but not due to misuse)
- Warped windows or doors due to temperature or age
- Dirty draperies or blinds
For example, Texas defines “normal wear and tear” as:
“…deterioration that results from the intended use of a dwelling…but term does not include deterioration that results from negligence, carelessness, accident or abuse of the premises, equipment or personal property by the tenant, by a member of the tenant’s household or by a guest of the tenant.”
So if a tenant was living in the property the way it was intended, and didn’t damage anything by means of abuse, negligence, accident, guests, animals, or lack of normal cleaning, then a landlord has no right to any deposit deductions. Since there’s no official list of acceptable deductions, landlords have to go by their state rules and personal experience.
Scenario #4: Property damage
If your tenant or their guests cause excessive damage to the property, you can use the security deposit to pay for repairs or replacements. Some damage is fairly obvious, such as big holes in the wall or floor or broken fixtures. Other things, that aren’t so obvious, can be deducted from the security deposit.
These could include (but aren’t limited to):
- Missing smoke or carbon monoxide detectors
- Flea extermination if a pet lived on the premises
- Broken or missing window blinds
- Appliances broken due to negligence
- Dirt and filth as a result of inadequate cleaning
- Any damages caused by lack of common sense or improper use (like sliding down a stair handrail)
Even if you find excessive damage after you returned the deposit, you can still send an invoice to the tenant. However, you’re less likely to receive that money than if you deducted it from the security deposit.
Scenario #5: Cleaning
If you have to pick up and dispose of a few minor items after the tenant is gone, that’s not grounds to withhold part of the security deposit. And quite honestly, it’s just not worth the effort to deduct money for a few items. If the tenant left junk and trash all over the place, or food rotting in the fridge, that’s a different story.
Many leases specify that a tenant should leave the property in “broom clean condition,” or terms to that effect. I’ve never liked this term, because a tenant could sweep the apartment but leave a mess on the stove or in the fridge or closets. Without more specific language in the lease, you could run into problems with the term “broom clean.”
Scenario #6: Painting
Many landlords repaint interiors to attract new tenants. It’s routine and is usually performed every few years—so you can’t deduct the costs of hiring a painter or purchasing paint from the security deposit.
Tenants who want to personalize their space will want to know how much a landlord can deduct for painting. If they paint the walls a bold shade or draw on them, you can deduct the cost of repainting for those rooms. The same holds true if the repainting is necessary because the tenant or their guests smoked in the dwelling and caused staining on the walls.
Likewise, if the tenant painted without your permission (lease clause required), you would be able to deduct the cost of a painter and supplies to return the wall to its original color compared to when they moved in. But if the paint color they chose is neutral and nicely executed, then you might thank your tenant for painting.
Make sure to document all the necessary repair work to prove your expenses (you can track your expense for free in Cozy). In most states, such documentation is required above a fairly nominal monetary amount.
If you deducted money from the security deposit, and the funds are unsubstantiated, the tenant can take you to small claims court. They may be awarded 2 to 3 times the deposit amount if you wrongfully withheld anything.
Security deposit best practices
- Fill out an “Inventory/condition checklist” before the tenant moves in.
- Provide the tenant with an itemized receipt of any deductions before returning any money.
- Take pictures of damages and the overall condition of the unit after tenants move out.
- Follow your state’s laws for returning security deposits.