Security Deposit Refund: What Happens When A Tenant Moves Out
The security deposit refund or notification of the balance owed must be processed when a resident moves out of a property. Before residents move in, landlords customarily charge a security deposit: this is a financial protection against property misuse and damages caused by a resident, held in escrow throughout the tenancy.
All or some of this deposit is often returned at the end of the tenancy. Whether or not this is the case depends on a resident’s ability to return the property in the condition in which they received it.
From property damages to cleaning fees and maintenance work, the security deposit for rent is subject to deductions for many reasons before homeowners can welcome new residents. Hence, it’s essential residents act responsibly and treat the house they’re renting as their own if they want to avoid these deductions.
In this article, we’ll discuss the common deductions for security deposits and the refund procedure to help investors and residents avoid misunderstandings and potential disputes during the move-out process.
What Is A Security Deposit And How Much Is It?
First, let’s establish what a security deposit is: a sum of money paid by a resident to a landlord at the start of a tenancy. It serves as a financial safeguard for the landlord against potential property damage, unpaid rent, or other breaches of the lease agreement. Typically, this amount is equivalent to one or two months’ rent, depending on local laws and other factors.
While it’s a resident’s duty to pay the security deposit, landlords are responsible for managing it properly and processing it appropriately at the end of the lease agreement. As such, the money must be kept in a deposit trust account insured by the FDIC and registered with the local Real Estate Commission and never, ever commingled with other funds.
Investors who don’t comply with these requirements can be subject to fines and even criminal charges in some jurisdictions. Hence, we suggest they handle the security deposit for rent responsibly or even consider delegating this to a capable property manager like Keyrenter for greater peace of mind.
Common Deductions Applied To Security Deposits
There are instances where landlords are legally allowed to deduct money from a security deposit to restore their property to the condition in which they welcomed their resident(s). The most common of these is to cover the cost of damage to the property.
Not all imperfections found in a property post-move-out qualify as damage. Understanding the difference between regular wear-and-tear (which residents aren’t always accountable for), and actual damage beyond normal wear-and-tear is crucial to determine what can or can’t be deducted during a security deposit refund.
Normal Wear & Tear Vs. Property Damage
Normal wear and tear refers to the natural deterioration of a property, its components, and materials over time as a byproduct of regular use and habitation. These minor imperfections are expected from a tenancy. Therefore, they’re not always considered to be the residents’ responsibility.
Some examples include, but are not limited to:
Minor fading or scuffing on the walls
Gradual thinning, color fading, and wear on carpets from concurrent foot traffic
Faded paint or minor wallpaper peeling/bubbling
Minor dust buildup in the vents of HVAC systems
Nail holes from hanging pictures or artwork (that can easily be patched)
Small scratches on indoor and outdoor surfaces
Slight discoloration on appliances
On the contrary, we have actual property damage: any destruction and misuse of a property’s components that reduce the place's value, usefulness, or normal function. The cost to repair these damages is commonly deducted during the security deposit refund.
Examples of actual property damage include, but are not limited to:
Abnormal, extensive stains on carpets or floors
Broken tiles, racks, fixtures, and/or windows
Large holes or significant marks on the walls
Large burn/stain marks on indoor and outdoor surfaces
Pet damage (chewed carpets, scratched floors, or dug holes) that affects landscaping negatively
Costs associated with pest control due to infestations caused by residents
Damage to HVAC systems that leads to mechanical issues, such as clogged filters due to neglect or misuse
A last form of property damage that may impact the security deposit is any modification done to a property without the landlord’s explicit consent. Especially those affecting the property’s appeal, that may deter prospects from renting out the place: changes to the locks (requiring rekeying or replacement), removing walls, adding fixtures, and other significant alterations.
Other Deductions To Security Deposits
Besides property damage, other potential deductions could be applicable if and when residents fail to fulfill their lease obligations, although it is important to stipulate these possible deductions in your lease agreement:
Unpaid Rent: Landlords may deduct outstanding rent payments owed by the resident.
Outstanding Utility Bills: If residents are responsible for paying utilities and have unpaid utility bills, landlords can deduct the owed amount to cover these expenses.
Cleaning Fees: Landlords may also deduct the cost of cleaning the rental unit to bring it back to the same level of cleanliness before the move-in.
Lease Termination Fees: If residents decide to terminate their lease agreement early, homeowners can deduct fees stated in the lease agreement from the security deposit, as long as those adhere to local laws.
The Security Deposit Refund Process
Once residents move out, homeowners have some time to inspect their property, take note of its condition, and determine what damages (if any) residents are liable for before the security deposit refund. The length of this period varies from one state to another.
If a property incurs significant damage, investors must have documented evidence showing the home’s condition before tenancy. This can be achieved by taking thorough photos before moving in. Keyrenter manages this process for clients through a detailed pre-move-in inspection, capturing a clear record of the property’s condition before the lease begins. This documentation is then used to reconcile the post-move-out inspection, ensuring a reliable comparison to the property’s original state.
In addition, homeowners need to provide residents with an itemized statement containing the cost for each repair, as well as any other deductions they’re subject to. This ensures clarity and transparency around the liabilities the deposit will be used to cover. Funds are then deducted from the security deposit. Within the timeline allowed by law, the remaining balance (if any) must be remitted to the residents, completing the refund process.
If the total cost of repairs for property damages exceeds the security deposit’s amount, homeowners can request that difference from residents. If they refuse to pay the remaining balance, landlords can take legal action by filing a claim in small claims court and presenting due evidence.
Navigate Security Deposit Refunds Seamlessly With Keyrenter
Navigating security deposit refunds can be complex, stressful, and time-consuming because of the nuances involving residents' and landlords' rights, requirements, and responsibilities.
From assessing normal wear and tear versus actual damage to ensuring all deductions are fair and legally compliant, the security deposit is a lot to manage. There’s also the meticulous documentation, clear communication, and sometimes legal action necessary to resolve disputes, which can be overwhelming and one that not every investor has the time to deal with.
Given these challenges, hiring a professional property management company like Keyrenter is usually what takes owning a property from being a second full-time job, to becoming the truly passive endeavor it should be.
Keyrenter assumes the burden of inspecting properties, managing security deposits, and communicating with residents for investors while helping them stay compliant with local laws. This helps them rest at ease while their equity grows monthly, with minimal input needed from them.
If you’re an investor looking to rid yourself of the stress and time commitment of managing a property on your own, schedule a discovery call with our local BDM and find out how Keyrenter can help you grow your rental business and build generational wealth through real estate.
Frequently Asked Questions
Q1. What Oklahoma Law Regulates Security Deposits?
A: The law regulating security deposits in Oklahoma is the Oklahoma Landlord-Tenant Act, which can be read in full on Oklahoma’s Senate website.
Q2. Can Property Owners Use The Security Deposit For Personal Expenses?
A: No. The security deposit should be kept in a trust account insured by the FDIC and registered with the local real estate commission. Landlords who don’t follow this are subject to fines, penalties, and potentially criminal charges (misdemeanor).