A Landlords Guide to Security Deposits
When a Landlord takes on a new Tenant to rent their property, they will usually ask the Tenant for money to be held as security against any damages. This “Security Deposit” will be used to offset the costs of damage caused by the Tenant, early lease termination, non-payment of rent losses, costs of unpaid utility bills, and even the costs of cleaning the property after the Tenant has vacated. Most private Landlords request at a security deposit of at least one month of rent before they will rent their property to a new Tenant, but do you know what Florida Law says on how you are supposed to handle that money? Here, we will go over some basic questions on how to handle a security deposit, when a security deposit can be used, and how you can make a claim against a tenant’s security deposit.
What do I have to do with a security deposit a Tenant gives me?
Florida law gives Landlords three options when it comes to how they will store Tenant security deposits. Those three choices are:
- Hold the funds in a non-comingled non-interest bearing, Florida bank account. The only funds in this account may be security deposit funds, and the account may not be used as collateral or as an asset for purposes of qualification for a loan.
- Hold the funds in a non-comingled interest bearing, Florida bank account. If the funds are held in an interest-bearing account then the Tenant shall be paid either 75% of the annual interest rate or a simple interest rate of five percent (5%) per year. The method used to calculate the interest paid to the Tenant is in the discretion of the Landlord. The only funds in this account may be security deposit funds, and the account may not be used as collateral or as an asset for purposes of qualification for a loan.
- Post a surety bond with a company authorized to do so in the state, and pay an interest rate to the Tenant of five percent (5%) per year on all funds held in security. The size of the required bond, and location of filing, depends on the number of units, amount of security deposit collected, and the location of those units.
Practically speaking, what does the above mean for most Landlords? As a Landlord, the simplest way to manage your security deposits is probably to keep them in a non-interest-bearing account, where you only keep your Tenant’s security deposits. Remember to make sure if you have security deposits for more than one unit in the same account to maintain an accurate accounting of the money in each unit’s security account. Most important of all, never dip into the security deposit funds, or use them as collateral or proof of assets for a loan. If you stick with those practical tips, you should be able to avoid most security deposit problems.
Of course, if you do not want to have to deal with the headache that is managing your security deposits, The Weil Law Group, PA would be happy to do it for you. In addition to making sure all security funds are stored properly, we will handle coordinating the return of the deposit and any disputes that may arise.
How much of a security deposit can I request from a Tenant?
While there are no state laws regarding how large of a security deposit you can request from a tenant, several cities and counties do have ordinances restricting and limiting the amount of security deposits that can be requested. This means that most Florida Landlords can charge any security deposit amount they want. However, make sure to check local codes or talk to an attorney before setting any number you want to make sure that you are not going to be breaking any local rules.
Most Landlords, particularly smaller Landlords, tend to go with the default of one (1) months rent. However, if you have a property with a particularly low monthly rent, it may be wise to go higher. For that reason, many Landlords set a minimum-security deposit amount. For example, if you are renting out a studio apartment for $500.00 per month, a $500.00 security deposit will probably not cover much in damages should you need to make repairs. In these cases, it is wise to have some minimum-security deposit. For most of my clients, I recommend never getting less then $1000.00 from a new tenant.
A common fantasy among Landlords however is that they can make what looks to be a bad Tenant on paper into a good Tenant by increasing the security deposit. No amount of money sitting in the bank will make the hassle of a non-rent paying, or rule breaking, problem-Tenant worth the hassle. Though it may be a good idea to sometimes look past an otherwise good-looking Tenants minor flaws, and allow them to move in with an increased security deposit. If you see multiple evictions, a high debt-to-income level, a criminal record, or other deal breakers, let them be just that: a deal breaker. A Tenant who is willing to give you extra money for a security deposit, or pay more rent up front, is probably a problem waiting to happen.
What type of notices do I have to give my Tenant regarding their security deposit?
Under Florida law a Landlord needs to provide their tenants with a written receipt upon taking any security deposit. In addition to this written receipt, within 30 days the receiving the security deposit the Landlord must provide written notice of:
- How the Landlord is keeping the funds (I.E. jointly or separately, interest bearing or under surety). If the account is interest bearing, this must include the interest rate and how such interest will be paid to the tenant.
- The name and address of the financial institution which is storing the funds.
- A specific written disclosure as specified by statute.
This notice may be given to a Tenant by either US mail, hand delivery, or electronically, if the Tenant has consented to electronic communications. Regardless of the method, make sure to maintain a record of what was sent to the Tenant and when. Naturally, should any of the above information change, updated notice should be given to the Tenant.
Again, dealing with this paperwork can be a hassle for many landlords. If you would rather not have to worry about dealing with security deposit problems, The Weil Law Group, PA is here to help. Our office will handle sending all required notices and correspondence to your tenants and maintain a record for compliance purposes, should you ever have a problem.
Am I required to do a walkthrough inspection with my Tenant before/after their occupancy of my property?
While Florida law does not require a walk-through be done with your Tenant before OR after the occupancy of the property, it can often be a wise plan in order to eliminate disputes over damages. Not only that, depending on your local jurisdiction you may also have certain walk-through ordinances which effect you. For example here in Broward County, security deposits are required by ordinance. Regardless of whether or not you chose to perform a walkthrough, there are a few steps you should make sure to take before a Tenant moves in, and after they move out, to make sure you don’t run into any problems enforcing a claim on a security deposit.
Prior to moving in, you should make sure to take pictures or video showing the condition and state of the unit, making sure to save this information somewhere that it can not get lost. You also want to make sure the photos or video has a time/date stamp, that way you can tell when the video was captured. (Pro-tip for those who can not figure out the time and date stamp on your equipment, you can always use the old-school method of holding up a newspaper.)
In addition to documenting the unit prior to the Tenant moving in, you will want to document repairs and replacements you make during occupancy. For instance, if you replaced appliances or updated flooring, make sure to document how everything looks at the point the Tenant has access to the unit after the updates have been made.
When the Tenant is moving out of the property, you’ll want to perform your closing inspection as close as reasonably possible after move out (You need to be able to know if you intend to make a claim within 15 days). When performing your move out inspection, compare the current condition of the property and amenities to the photos and images you took when the Tenant moved in. Everything at your property should be in the same condition as when you turned it over to the Tenant, less regular wear and tear. Many Landlords often wonder what constitutes regular wear and tear, and unfortunately it is not a clear-cut answer. But generally speaking, it is the type of damage that would result from the normal use of the property.
Another thing to make sure of is that the unit is as clean when your Tenant left as when they moved in. If the property is not, you will be able to pass the costs of cleaning to the Tenant (Alternatively, you can also include a cleaning fee in your lease that is always charged upon move out, however this can sometimes encourage your Tenants to skip cleaning your apartment prior to moving out).
What is the procedure for keeping/returning a Tenants security deposit after they have moved out?
If you fail to follow the proper procedures after a Tenant has moved out, you leave yourself open to loosing your ability to make a claim against the deposit. Even worse, failure to follow proper procedures can open you up to a lawsuit. The most common type of Tenant-raised lawsuits are the result of security deposit disputes. When combined with a law that awards a prevailing party attorneys fees, can cause many Landlords a headache. Often legal fees from such cases far exceed the actual amount of security deposit in dispute. So, what exactly are the proper procedures?
First of all, depending on the circumstances, the portion of the security deposit which is being returned must be returned within 15-60 days. More specifically the following rules apply:
Landlord has No Intention to Make Claim on Security Deposit
When a Landlord does not intend to make any claim against a security deposit, the entire deposit, (plus any accrued interest) must be paid to the Tenant within fifteen (15) days of when they vacated the property.
Landlord has an Intention to Make Claim on Security Deposit
If a Tenant does intend to make a claim against the security deposit in any amount, the law requires the Landlord to provide notice to the Tenant in writing within thirty (30) days after the termination of the lease (or the date the property was vacated). This notice must inform the Tenant that:
- The Tenant has fifteen (15) days to contest the claims.
- Any protest made by the Tenant must be in writing.
- State the Landlord’s intention to keep all or a portion of the security deposit.
- List the reason for, and amount of each claim, with a reasonable amount of specificity.
- Be sent by certified mail to the Tenant.
If the Tenant fails to make any claim within fifteen (15) days, the Landlord is required to send the Tenant the remainder of the security deposit back within thirty (30) days of the date of the notice.
If a Tenant does dispute the security deposit, and an agreement can not be reached as to how much should be assessed by the Tenant and the Landlord, then court, (or mediation / arbitration) will be needed in order to settle the dispute. As a Landlord, if you end up in court, it is important to know you will be on the hook for attorneys’ fees of the Tenant should you lose.
Even if you are found to have been entitled to part of the security deposit which you made a claim against, if you lose any portion of the lawsuit, the cost of attorney’s fees may be greater than the deposit portion you were able to keep. This is something to consider when dealing a particularly aggressive former Tenant and their security deposit. It can sometimes be easier to just return the security deposit to avoid the time, hassle, and risk should you receive a dispute. Of course, this is a business decision that must be made on a case-by-case basis.
As you can see, there are many nuances when dealing with security deposits on your rental properties. If you are not careful, the security deposit you thought would cover you in case of damage can turn into a costly expense when you fail to follow the proper procedures. If you prefer to make sure everything to do with your security deposit process is done right, The Weil Law Group, PA is here to help.
What happens to a security deposit if I sell my rental property?
A Landlord who sells their property is required to transfer all security deposits and earned interest to the purchaser of the property. Upon transferring the funds to the new property owner, a written notice should also be provided to the Tenant explaining the changes which have occurred. Upon the Tenants receipt of that written notice, the old Landlord will pass all responsibility for the security deposit and its proper treatment to the new property owner.
What to do when you need help with dealing with your Tenant’ Security Deposit?
If after reading this guide you are feeling a little overwhelmed on what to do with your security deposit, the answer is simple. Reach out to The Weil Law Group, PA. We are here to help with all of your needs as a Landlord. From dealing with Tenant screening, to security deposits, to eviction, we will be here with you every step of the way. If you would like to learn more about how we can help you be a better, and more-profitable Landlord, contact us here or give us a call at 954-603-7603.
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