The Property Management Shop

Don't Be a Tightwad With Security Deposits

by Marc Wilson

Q. I was just served with a summons to appear at Small Claims Court. One of my previous tenants is suing me about the disposition of her security deposit. We deducted $475 for paint, patching and touch-up work, and an additional $350 for stains on the living room carpet. What should we do?

A. I have witnessed two phenomena over the past 12 months. The first phenomenon has been a ruthless bombardment, with cumbersome and annoying legislation, concerning the disposition of security deposits. This year’s new law, AB 2330 has mandated pre-vacancy inspections, and now I hear there is emerging legislation that mandates the inclusion of invoices for work performed within the security deposit disposition. Try to imagine the difficulty of providing a vacating tenant with the security deposit refund, his/her security deposit disposition document and copies of all corrective work within 21 days of vacating.The second phenomenon has been an increase in calls from owners complaining about security deposit “beefs” with tenants and their resulting journeys into the morass of Small Claims Court. Disgruntled tenants are dragging more and more owners and managers to Small Claims Court.

Why are these two things happening now? Someone is to blame—either the owners or the tenants. I attended an industry meeting last month, and a property manager announced that his company is currently handling 200 notices to vacate per month. He then mentioned that for every monthly batch of 200 security deposit dispositions, his staff must deal with 20 small claims suits filed by discontented tenants. I’m thinking to myself “these people are ending up in Small Claims Court for 10 percent of their security deposit dispositions. Can you believe 10 percent? There is absolutely no excuse for having 10 percent of your security deposit dispositions end up in Small Claims Court. I've been in this business for 20 years and handled over 1,000 security deposit dispositions, and a malcontented tenant has never sued me.”

Make no mistake—I blame apartment building owners and managers for our current legislative problems regarding security deposits. Some of you obviously cannot handle the responsibility associated with OPM, also known as other people’s money. I know, I know. Times are hard, costs are going up, vacancies are on the rise and rents are going down. Nobody likes to be inundated with notices to vacate, increasing vacancies and falling rents. But do me a favor—don’t take out your frustrations by fiddling with the tenant’s security deposit. This kind of behavior only makes life more difficult for the rest of us. Try to conduct your affairs like the professional you are and always try to be fair. Treat others as you would like to be treated. Pretend the tenant is a member of your family when you are deciding what is fair concerning the disposition of the security deposit. Pretend you might have a future relationship with this person. Try to err on the side of the tenant. Figure out what’s fair and charge the tenant 90 percent of that number. If a tenant has been in possession for five years or longer don’t charge for painting or putting in a new carpet. You have complete control over the security deposit, or at least you did at one time. With complete control, comes great responsibility. Do you want to avoid being dragged to Small Claims Court?

Do you want to help stem the tide of increasingly onerous security deposit disposition legislation? Then do the following:

Always rent apartments in perfect condition to good tenants.
Always use the “move-in” checklist at the beginning of the tenancy.
Always acknowledge a tenant’s notice to vacate with a written acknowledgement letter that details your expectations about the condition of the unit
Always provide the vacated tenant with a detailed disposition of the security deposit document and attach the “move-out” checklist.
Always “go over the top” in terms of the level of fairness that you apply to the disposition of the security deposit. If you’re going to err, err to the benefit of the tenant.
Always save the aforementioned documents and correspondence in the tenant’s file.

My experience with the Small Claims Court system is that it is relatively fair. Even if you get a card-carrying, anti-property-owner, communist for your first judge, you can always appeal the verdict. The appellate judges are all professionals. At the time you defend yourself, make sure to bring the “move-in” checklist, the “move-out” checklist, copies of the invoices and pictures of the damage. Bring copies of all your professional, written correspondence to the hearing. If you don’t have these documents, save yourself a lot of time and aggravation and simply send the tenant his/her money.

The opinions expressed in this article are those of the authors and do not necessarily reflect the view point of the SFAA or the San Francisco Apartment Magazine. The information within this article is general in nature.

Marc Wilson has been managing and selling San Francisco apartment buildings for over 15 years. Please send your questions concerning property management issues to Marc Wilson at 1699 Van Ness Avenue, SF, CA 94109. He can be reached at 415-229-1275. Copyright © 2003 San Francisco Apartment Magazine