One of the biggest problems that “do it yourself” landlords run into is how to handle a security deposit. Some of the biggest problems that they encounter are tenants trying to bully them into giving back money that should really be withheld for repairs, tenants threatening lawsuits or actually filing them, not knowing what documentation is required, etc.
Obviously, the smartest thing for any landlord to do is to hire a professional property management firm to handle these issues so you don't find yourself in hot water. But I figured a quick discussion of what the law requires in Georgia might be informative both for “do it yourself” landlords and for our clients. Keep in mind, of course, that this is not written by an attorney, and should not be considered legal advice.
Now, with the legal disclaimer out of the way, how are you supposed to handle security deposits?
First, the best practice when taking a security deposit is to have it held by your property management firm in their trust account. In fact, this is our company policy for all properties that we manage. We had several owners in the past who wanted to hold security deposits themselves, and this inevitably lead to problems when it was time to process the deposit on move-out, so we now have a policy that security deposits have to be held in our trust account. If you're a landlord without a property manager, you should probably consider keeping the security deposit in a separate bank account so you aren't tempted to spend it. If it comes time for the tenant to move out and you don't have the money to give back to them, the court will not take sympathy on you. They'll expect you to pay it, because you weren't supposed to spend it. Technically, that money is being held on behalf of the tenant, and it is still their property until it used to cover any charges on move-out.
Second, be fair on the move-out inspection. Courts will not be lenient if you try to overcharge the tenant for repairs. Not only is it just the right thing to do to give someone their money back if they are owed it, but it also prevents you from being stuck owing additional money. If a tenant were to take you to court for withholding their security deposit, and the judge found that you were at fault, it's possible that he could issue a judgment charging you for any bank overdraft fees or late charges that the tenant incurred as a result of not having the money that was rightfully theirs. Punitive damages are also possible. It's best to just be fair and avoid these problems.
So, what should you put on the move-out inspection that is fair? Basically, anything that isn't “normal wear and tear.” You could also have requirements in your lease for certain maintenance that the tenant was required to do, so if they didn't do that, you should charge them for those items. For example, our leases require tenants to have the carpets professionally cleaned and the furnace filters changed at least every 6 months. If we do a move-out inspection and find that these things weren't done, then we charge the tenant for a professional carpet cleaning and a furnace servicing. Another thing to consider is changing the locks. If a tenant doesn't turn in all of the keys that they were issued, then our lease says that they get charged $150 for re-keying the property. There are other examples, but these are good things to keep in mind about what is fair to charge a tenant. Obviously, damage such as holes in walls, marked floors, ruined paint, etc. are all fair game, also, but those are a given.
In Georgia, the law requires that this move-out inspection be done within 3 days of the tenant vacating the property, unless they abandoned the property early, in which case you have a “reasonable” period of time to conduct the inspection. The best practice is to setup an appointment with the tenant on move-out so that they can be present for the inspection, and even better, sign the inspection when it's done. It's difficult for a tenant to dispute a charge that they signed for. If the tenant is not present, then we make a note on the form that the tenant was offered a chance to be present and chose not to, then we forward them the inspection so that they can dispute it as they are allowed under the law. Ultimately, how the deposit is processed at that point is up to the holder, unless the tenant files a formal suit in court to challenge it legally.
After the inspection is done, Georgia law requires that any deposit that is remaining after the charges be sent to the tenant within 30 days of move-out. It is very important that this be done on time. Failure to do this is a very easy lawsuit for an angry tenant to file. And again, it's just the right thing to do.
Obviously, keeping up with all of these requirements and time limits can be difficult for a landlord who has a full time job, family obligations, and hobbies. That's why hiring the professionals is usually the best bet. Please give us a call if all of this sounds overwhelming and you're looking for some help.
Todd J. Ortscheid, CEO
