End of tenancy deposit returns: Best practices for landlords

Your tenant is nearing the end of their lease, and they’ve decided not to renew. As a landlord, this means it’s time to prepare for their departure, including handling the return of their tenancy deposit.

In this guide, we’ll cover the steps for returning deposits, explain common reasons for deductions, and clarify how long after tenancy should deposit be returned.

What is a tenancy deposit?

A tenancy deposit, often called a security deposit, is an amount of money that you collect from your tenant at the start of their lease. It’s typically equal to one or two months’ rent and is paid before the tenant moves into the property.

The purpose of a tenancy deposit is to protect you from potential financial losses. It covers any damages to the property beyond normal wear and tear, unpaid rent, or other lease violations. By holding this deposit, there’s a safety net in place if the tenant fails to meet their obligations.

After your tenant has completed their tenancy, you’re legally obligated to return their security deposit. Promptly returning the deposit and only making necessary deductions helps minimize disputes and reinforces your reputation as a reliable and fair landlord.

What is the deposit return process?

Here are the key steps to follow during the end of tenancy deposit return process:

Property inspection

The move-out inspection is the first step you should take when a tenant is leaving. This involves carefully assessing the property to evaluate its condition and identify any damages beyond normal wear and tear and unapproved alterations.

When you can schedule the move-out inspection depends on the regulations in your state. In some states, you are required to schedule the inspection before the tenant vacates, typically within two weeks of the tenancy’s end. In other states, you may have the flexibility to conduct the inspection a few days after the tenant has moved out.

If feasible, it’s advisable to have the tenant present during the move-out inspection. Their presence allows you to discuss any potential issues immediately. This can lead to a smoother process and fewer disputes over deposit deductions.

Documenting the condition of the property

Documenting the move-out inspection effectively begins with the documentation you gathered during the move-in inspection. Comparing the move-in and move-out documentation allows you to identify any damages or changes beyond normal wear and tear. This comparison can determine what deductions to make and help justify these to the tenant.

Here are a few items to include in your documentation:

• Date-stamped photographs of each room
• Notes on the condition of walls, floors, appliances, and fixtures
• List of any damages or repairs needed
• Detailed descriptions of any alterations made by the tenant

It’s essential to understand what constitutes normal wear and tear versus damage. Normal wear and tear is the gradual deterioration of the property due to regular use, such as minor scuffs on walls, a loose door handle, or carpet wear. Damage to the property would include a hole in the wall, a missing door handle, or a large burn in the carpet.

Common reasons for deposit deductions

Deposit deductions can sometimes lead to disputes, so it’s important to understand the justifiable reasons for security deposit deductions:

Property damage

You have the right to deduct the cost of repairs needed to restore the property to its original condition. These deductions should only cover damages caused by the tenant.

Examples of property damage include:

• Broken windows or doors
• Large stains or burns on carpets
• Holes in walls or damaged fixtures
• Broken appliances due to misuse

Non-payment of rent

A common question is can a security deposit cover rent arrears? The answer is yes; if your tenant fails to pay rent, you can use the security deposit to cover the outstanding amount. This ensures you’re compensated for the unpaid rent.

Cleaning costs

If the tenant leaves the property in an unclean state that goes beyond normal use, you can deduct cleaning costs from the security deposit. It’s essential to only charge for professional cleaning if the property is left in a condition that requires it.

Abandoned items

If the tenant leaves behind personal belongings after moving out, you may need to deduct the cost of removing and disposing of these items from the deposit. This deduction is justified as it covers the expense and effort required to clear the property.

Unpaid utilities

Unpaid utility bills left by the tenant can also be deducted from the security deposit. If the tenant was responsible for paying utilities during their lease and failed to settle those bills, you have the right to use the deposit to cover the outstanding amounts.

How long does a landlord have to return security deposit?

The timeframe for returning a security deposit varies by state, but you generally have between 14 to 30 days after the end of the tenancy to return the deposit. This allows you enough time to conduct inspections and calculate any deductions for necessary repairs. It’s also good practice to return the deposit as soon as possible to prevent impacting your reputation.

Methods to return a tenancy deposit

The most common method to return a tenancy deposit is a direct bank transfer, which is fast, secure, and convenient. Some landlords may prefer to issue a check, particularly if a detailed statement needs to accompany the payment.

Using rent payment software for landlords can simplify the process of returning deposits. These platforms often include features for tracking payments, generating statements, and securely transferring funds, making the process more efficient and less prone to errors.

Keeping records of tenancy deposit returns

Keeping detailed records of tenancy deposit returns is crucial. You should document the initial deposit amount, any deductions made, the final amount returned, and the date of the return. These records provide clear evidence of your actions and help to resolve disagreements with tenants.

Using digital tools to keep these records can streamline the process. Rent payment software helps in maintaining accurate and easily accessible records, ensuring that all information is stored securely and can be retrieved when needed.

Maintaining positive relationships with tenants

A smooth deposit return process ensures tenants leave on good terms. Here are our two top tips for maintaining good relationships during the return of deposit at end of tenancy:

Prompt deposit returns

Returning the deposit quickly shows respect for your tenant’s time and helps avoid disputes. Aim to complete the return as soon as possible after the inspection.

Fair deductions

Ensure any deductions from the deposit are justified and well-documented. Provide clear explanations and evidence, like photos or receipts, to prevent conflicts and demonstrate fairness.

Effortless deposit returns with RentPayment

RentPayment offers landlords a comprehensive solution for managing rent payments and tenancy deposit returns. With RentPayment, you can easily track all financial transactions, generate detailed statements, and ensure timely and secure deposit returns.