How to Handle Security Deposit Returns - Article Banner

A security deposit is collected from your tenants before they move into your property to protect you against damage, unpaid rent, and lease breaks. At the end of the lease term, when a tenant has moved out, you will have to return the security deposit in full, unless you are making deductions based on damage that was discovered during your inspection. 

Collecting, holding, and returning the security deposit comes with specific rules and requirements. The security deposit return is an essential part of the rental process. It’s an official closing of the books on a past tenancy while you settle into a new one. 

While the money is held in order to protect you, it’s important to remember that the security deposit is not your money. It remains the tenant’s money. Good tenants will want to receive their entire deposit back, so they’ll be careful about keeping the home clean and well-maintained. They’ll pay rent on time. 

Virginia, Maryland, and Washington, D.C. all have similar laws that address security deposits, specifically what they can be used for and when they need to be returned. 

In our experience as property managers in and around Washington, D.C., we have noticed that most tenant and landlord disputes arise because of a disagreement over the security deposit. Tenants sometimes become defensive if their money isn’t returned and landlords are sometimes too willing to assume that wear and tear is tenant damage. 

We think it’s important that you know how to handle security deposit returns. 

Security Deposits: When to Make Deductions 

Your tenant will give you notice that they’re moving out, and you’ll want to provide them with a list of move-out instructions. This will set them up for success; they’ll know exactly what they have to do in order to get their deposit back.

After the tenant has vacated, turned in the keys, and provided a forwarding address, you’ll conduct an inspection to determine whether any damage has been left behind. That damage can be paid for out of the deposit. 

Security deposit deductions will only become difficult if you don’t know the difference between damage and normal wear and tear. 

Let’s take a look at why you might keep all or part of a security deposit. Make sure you have careful documentation that can prove you’re keeping money from the deposit for these specific reasons. If your departing tenant pushes back or brings you to court, you’ll need the necessary back-up to show why you withheld the deposit. 

Here are some of the things you can and cannot use a security deposit for, whether you’re renting out a property in Maryland, Virginia, or D.C.:

  • Unpaid Rent 

Use the security deposit for any rent balances on the tenant’s account. 

If a tenant has missed a month or more of paying rent, and they never managed to catch up, you can use the security deposit to bring the account current after the tenant leaves. We see this when a tenant didn’t pay the full rental amount for a few months, but then continued to pay rent on time and in full as normal. There’s still a balance, and you can apply the security deposit to clear that balance after your tenants move out.

Sometimes, you’ll have a tenant who does not pay the last month of rent at all. They’ll assume that they can use their security deposit to cover that rent. This should never be offered to tenants as a way to manage rental payments. The deposit isn’t meant to cover rent during the tenancy. Don’t let tenants use the security deposit as the last month’s rent. You want to collect rent as you normally do. The deposit isn’t meant to replace it; you can simply use it at the end of the lease period to pay for any past due rents.

  • Lease Breaks

Using the deposit to pay for rent when tenants break the lease and leave the property suddenly and without notice is also permissible. The deposit, in this case, can provide you with a safety net against the rental income you’ve lost. 

However, work quickly to find a new tenant so you don’t have to worry about months and months of vacancy loss. The security deposit will only cover you for so long.

  • Overdue Utility Bills 

If your tenant was responsible for the utility accounts and did not keep up with bills, there may be a balance. Perhaps when you go to turn the electricity on in your name during the turnover period, you will discover there’s money due or a shut-off notice was served. 

When a tenant moves out and the utility accounts are overdue, you might have a hard time getting them to catch up with those electric or water bills. You can use the tenant’s security deposit to pay for any overdue or unpaid utility bills. 

  • Cleaning Costs

Everyone has different standards when it comes to cleaning. Your departing tenant might think the home was reasonably cleaned after they ran a vacuum and wiped down the counters. You might have expected a bit more. 

Be specific about what kind of cleaning you expect before a tenant vacates. You can expect tenants to return the property in a condition that’s as clean as it was when they moved in. If the tenants move out and you find that there’s trash left behind or not everything has been moved out, you will have to pay to make the rental home appealing to new tenants. The security deposit can help cover any cleaning costs that should have been your tenant’s responsibility. 

  • Property Damage

Property damage can be caused by abuse, misuse, and neglect of the property. 

It can also be an accident. 

During your inspection, you should be able to notice when you have damage because it goes beyond wear and tear. While small nail holes cannot be deducted, large holes in the walls or floors can absolutely be deducted from the security deposit. Scratches on the floor or stains in the carpet are examples of damage. If a refrigerator no longer works because a child was hanging on the door, that’s a repair you can deduct from the deposit. 

Security Deposits: When NOT to Make Deductions

We’ve talked about some of the reasons that you might make deductions from the security deposit. You cannot, however, deduct from the deposit for these reasons. 

  • Normal Wear and Tear

Normal wear and tear is your responsibility as a landlord. You cannot charge a tenant for those small nail holes in a wall where paintings or pictures were hung. You cannot charge for the scuff marks on the floor or against the wall where furniture sat for a year or longer. Caulk in the tiles is likely to chip away or grow mold and you’ll have to deal with that at your own expense. 

  • Upgrades and Updates 

If you’re updating your property during the turnover period to make the home more attractive to your future tenants, that’s great. But, you cannot charge the security deposit of your departing tenant in order to pay for those things. 

  • Damage You Cannot Prove 

Don’t make deductions because you think a tenant may have caused some damage. If you’re inspecting the property and you find that the dishwasher is not working, you cannot prove that your tenant broke it. The appliance may have stopped working moments before you tried to turn it on. 

Timelines for Returning Security Deposits

Amount of Time to ReturnThe amount of time you have to return your tenant’s security deposit depends on where you live. Luckily, things are pretty consistent throughout our market and region. In Virginia, Maryland, and Washington, D.C., you must return the deposit to tenants within 45 days from lease termination, or when those tenants leave the property.

If you’re not returning the full deposit, make sure you’re sending an itemized list of deductions that explains what was withheld and why. 

Send the deposit and any correspondence about what you’ve withheld to the forwarding address the tenant provided. If you did not manage to collect a forwarding address, you’re required to send the deposit to the last known address, which may be your rental property

Always return the security deposit to your departing tenants on time. Otherwise, your tenants can take you to court, where you may be ordered to refund the entire deposit and pay a penalty up to three times the amount you withheld. Plus, you could face additional court costs and legal fees. 

Protect yourself by carefully documenting the condition of the property before the tenant moves in and after the tenant moves out. This will clearly demonstrate what things looked like before the resident took possession and after. It could keep you out of court. 

Security deposits can be difficult, but they don’t have to be. When you’re working with a professional property management team, there’s less risk of a mistake. If you’d like some help managing the collection and return of your tenant’s security deposit, we’d be happy to help. Please contact us at Stripe Management. We work with owners, investors, and properties in Prince George’s County, Montgomery County, Washington, D.C., and anywhere in the DC metro area.