How to Best Handle a Security Deposit Dispute

Winning the case against your tenant

Picture of Handling a Security Deposit Dispute
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Security deposit conflicts are one of the most common issues between landlords and tenants. It can become a hostile debate because each side believes they deserve the money. There are certain things you can do, however, to help handle a dispute successfully. Learn four steps to help resolve the problem quickly and peacefully. 

Show You Have a Legal Reason for Keeping the Security Deposit

The first step a landlord can take to try to resolve a security deposit dispute quickly and peacefully it to provide the tenant with the legal reason the landlord has taken deductions from the tenant’s security deposit. A tenant’s first defense is often to question your legal right to keep their security deposit.

Every state has different rules, so you need to review your state's landlord-tenant law to determine the legal reasons you can take deductions from the security deposit. Two common reasons you may be able to keep a tenant's security deposit are damage to the apartment in excess of normal wear and tearand unpaid rent. If your tenant has followed all terms of their lease, paid their rent on time, and left the apartment clean with no damage, you may have a harder time justifying the deductions you have taken.

If you have determined your reason for withholding a portion, or all, of the tenant’s security deposit, is a legal reason in your area, then you should inform the tenant that you are legally allowed to keep their deposit under your state’s law for the reason you have stated. A tenant will often back down once they realize it is your lawful right to keep a portion of their security deposit.

Show You Have Followed Your State, County, and City Laws

Not only do you have to have a legitimate reason to withhold a tenant’s security deposit, but you must also make sure you have followed all security deposit procedures correctly. If a tenant is not satisfied with your legal right to keep their security deposit, their next step is to look for a mistake on your part. They will question all the security deposit laws, from how you have stored the deposit to whether you were required to give them a written receipt after you collected their deposit. 

Even if you have had a legitimate reason for keeping a security deposit, if you have not followed local ordinances exactly, you may be forced to return the deposit to the tenant. For example, in some states, if you did not notify your tenant in writing of the bank and interest rate their security deposit was being stored at, you may be forced to return the full amount of the security deposit to the tenant, even if you would otherwise have been entitled to keep that money.

If you have followed all your state's laws correctly, inform your tenant of such. The tenant may give up trying to recover the security deposit.

Provide Evidence to Back up Your Claim

Any evidence you have that can support the reason you have made deductions from the tenant's deposit will help strengthen your case. If you are claiming the tenant damaged your apartment, do you have pictures to back up your claim? Do you have pictures or condition-checklist documenting the apartment before the tenant moved in and then after they moved out? Do you have estimates for the cost of a repair or for a replacement part?

If the tenant owes you back rent, do you have a certified letter sent to the tenant requesting this money, a notice to pay rent or quit, or evidence of eviction proceedings filed? If the tenant has breached their lease in another way such as harassing neighbors or excessive noise, do you also have evidence of such?

If you have sufficient evidence to back up your claim, then you can provide your tenant with this evidence. Again, the tenant may give up, or they may make one last effort to recover the money and try to sue you in small claims court. 

Are You Willing to Go to Court?

Even if you have a legal reason to withhold a tenant’s security deposit, have followed all state and local laws exactly, and have evidence to support your claim, your tenant may still try to sue you in small claims court to recover this money. Deciding if you want to deal with the hassle of small claims court or if you would rather just settle with the tenant for a sum of money is up to you.

Determining if small claims court is worth it will often depend on how much the tenant owes. If the tenant is fighting you over $100, wasting an entire day in court may not be worth your time and money. It may be worthwhile to just give the tenant that $100 to get them out of your hair. If you have done everything correctly and know you deserve to keep that deposit, then you may be willing to fight the tenant in court for as little as $10. You will have to weigh the cost versus the benefit of going to court for your particular situation.