Deducting From a Tenant's Deposit

One of the most common questions we get from rental property owners is: "How do I market my property to attract the best tenants?" The reality is, marketing a rental the right way isn’t just about putting up a listing and hoping for the best. There’s a proven process that makes all the difference in minimizing vacancy, maximizing rent, and placing high-quality tenants.

In California, you have 21 days from when you regain possession of the property to give the tenant a full accounting of all expenses that resulted in deductions to their security deposit. Charges need to be reasonable, documented with receipts and any vendors used need to provide their contact information. All of this information needs to be provided to the tenant along with the full accounting for the repairs and deductions to the security deposit.

If you do not provide the deposit disposition accounting and any monies owed to the tenant within the 21-day deposit disposition window, you will owe the tenant a full refund of the security deposit regardless of your justifiable expenses, no questions asked. If you refuse and the tenant sues you in small claims, you could be forced to pay your past tenant the full security deposit and up to 2 times the original security deposit and reimburse them for their court costs.

A commonly missed deduction is for water and trash. Be sure to call both the local sanitation company and the local water company to see if the tenant has an outstanding balance because these charges do not follow the tenant like an electric or gas bill. Water and trash bills always stay with the property. You cannot get either service turned on in your own name or another tenant’s name without first paying off the outstanding balance from the previous tenant. It is very frustrating to do a deposit disposition and issue even a partial refund to a past tenant only to find out later that you have to come out of pocket to pay off the water and trash bill left outstanding courtesy of that same past tenant.

Remember, most tenants are very familiar with the 21-day disposition requirement so this is a deadline you don’t want to miss. It is not uncommon for a tenant to move out and purposely not contact a property owner to check the status of the security deposit until after the 21 day deposit disposition period. Manage to this date and document when you mail the deposit to the tenant. Even if they don’t provide a forwarding address, mail the disposition accounting and any monies to the last known address which is your rental property. If the envelope is returned, keep a copy of it as proof that you made a good faith effort to stay within the 21-day period of the deposit disposition.