Typically, landlords request a security deposit before new tenants occupy their rental space. This is done to provide financial coverage for property damages and unpaid rent. The maximum amount that can be collected should be in accordance with what the state law mandates.
But what if the security deposit is insufficient to make up for unpaid rent? Consider the following:
Communicate with the Tenant
When the tenancy is up and you decide to keep the security deposit from the renters, they must be informed. Send them a letter that details the withheld security deposit amount and the reason behind the decision. Writing each deduction such as a cleaning fee or property repair makes to make sure everything’s clear and specific.
Give a Demand Letter
If the repair costs and/ or unpaid rent exceed the amount of the security deposit, you can choose to give a demand letter to the tenant. Whatever amount the renter still owes you needs to be written down in the letter.
Itemizing each deduction from repairs and cleaning charges to the unpaid rent should be included in the letter. Make sure to provide the total amount they need to pay and the due date for the payment. Avoid being vague and don’t forget to also write down your contact information to make it easy for the tenants to contact you when they have more questions.
Make Small Claims Court an Option
Some tenants will ignore a demand letter so you may need to proceed to a place with higher authority. Consider heading to small claims court. While this can be a viable resolution, there are also disadvantages to deal with.
First, consider how much the renter owes you. Then assess the benefits and drawbacks before proceeding to the small claims court to be repaid by your renters. Here are some of the drawbacks of going to small claims court:
Time and Money Spent
It takes time and effort to handle matters in a small claims court in order to be you’re paid back by the renter. Among the things you need to do is get your documents and proof ready. You also need to be prepared with presenting your case.
Aside from that, being aware of the small claims court process helps you. Note that the court hearing is conducted in an area where your rental unit is located. In addition, a filing fee needs to be shelled out at the small claims court and this can’t be waived even if you don’t win the case. Make sure that if you go this route you have the time and saving to do so.
Tenant's Capacity to Pay
Though your case can be won at the small claims court, you also need to deal with the reality of the renter’s capacity to pay. What if they really don’t have the funds to cover the payment owed to you? This can still make it hard to claim payment from the tenant. If that's the case, you’ll ultimately still need to wait until the renter obtains enough funds to pay you.
Burden of Proof
To win your case easily at the small claims court, it’s best to have documented proof. If some of your documents are missing or you don’t have evidence of the move-out condition of your rental, proof of repair, or cleaning costs, then it can be tough to argue your case.
Possibility of a Countersuit
Since the tenants would also want to clear their name, they might also countersue. With your documents arranged and pieces of evidence available, you still need to be prepared for a countersuit.
Perform Regular Property Inspections
Conduct routine inspections of your rental space to monitor its state. If you don’t, you won’t be able to detect if anything is amiss. You want to know right away if your renters are neglecting or abusing your rental unit. That said, you still need to respect your tenants’ privacy and right to peaceful enjoyment of the rental.
It’s best to arrange regular property inspections and send tenant notices so that everyone’s on the same page. Consult the state law on the proper notice period. Regular property inspections allow you to track potential damages without creating any disturbance for the renters.
The information regarding required inspections should be contained in the leasing agreement to set expectations from the start and avoid future complaints. What to look out for when performing property inspections:
- Pet stains
- Odors
- Damage to flooring and walls
- Functionality of appliances
- Lease violations
The Importance of Screening Tenants
Rather than facing the problem of property damage caused by tenants, you can design an excellent tenant screening procedure. You’ll be reassured of the type of occupants that gets to stay in your rental unit.
Screening renters can help you avoid renting to tenants that have no stable income or have a bad renter history. It also reduces possible disputes and ensures your rental income is steady.
Conduct a Property Walkthrough Before Tenant’s Leave
Before the renter moves out, it’s vital to schedule a property walkthrough. This allows you to track the property damage and make an estimate for repairs to be deducted from the security deposit.
You can also provide your renters with a complete list of the property damage so they have the chance to arrange for repairs before moving out.
Bottom Line
There are several steps you can take if you discover that a tenant’s security deposit doesn't cover the unpaid rent and damages. Make sure to document the condition of the property, screen tenants, and consider your legal options.
If you’re looking for a trusted property management company to help you screen your renters, collect the rent on time, and maintain your rental home, contact Draper Realty today!