What to Do If Your Security Deposit Doesn’t Cover Unpaid Rent

As a landlord, when you begin a new lease with a tenant, it’s crucial to collect a security deposit from them to ensure that you’re protected financially in any situation. Collecting a security deposit from a tenant is standard practice and highly recommended to all rental property owners.

A security deposit is usually equal to one month’s rent. While this may help you cover costs caused by a problematic tenant, it doesn’t always cover expensive repairs or unpaid rent.

If you find yourself in this unfortunate and challenging situation, keep reading to see what you can do about it!

Communicate with Your Tenant

As a landlord, you decide to withhold any portion of the security deposit after the lease ends and the tenant moves out. If you end up keeping the funds from the security deposit, you must provide your tenant with a letter stating how much of the deposit you will be withholding, paired with a detailed list of reasons the funds will be used.

The best way to do this is to create an itemized list of security deposit deductions that you will be making that describe the damages and any cleaning fees.

Suppose the cost of repairs is higher than the amount you collected as a security deposit and your tenant owes you money. In that case, this will need to be communicated in a letter requesting the remaining amount owed from the tenant.

Send a Demand Letter to the Tenant

As mentioned in the previous point, if the damages caused by your tenant exceed the cost of their security deposit, you must send your tenants a letter demanding the funds owed if you wish to be compensated for those costs.

This letter should include a detailed list of damages, cleaning fees, or unpaid rent. You should also have the amount of money you are asking for from the tenant and the date the tenant must pay the fee. In the letter, ensure that you are as specific as possible.

Include a phone number and email address to allow accessible communication between you and the tenant regarding the payments and any other questions or concerns they may have.

Consider going to Small Claims Court

If the tenant ignores the demand letter or refuses to pay the amount owed to you, it may be worth considering small claims court. While this may sound like the best option to get your money back, some negative factors are associated with this choice.

Consider the amount of money owed to you to determine whether going through small claims is worth the trouble before proceeding.

The following is a list of potential issues that you may run into if you decide to go to small claims court:

Small Claims Court is Time-Consuming

If you end up going to small claims court over money that your tenant owes you after their lease ends, you will have to prepare your case, gather evidence, research the process, and attend court hearings where your rental property is located.

There is also a fee that comes with filing with a small claims court that you must pay regardless of the outcome.

Your Tenant may be Unable to Pay You

If you take your tenant to small claims court and win, you must still collect the money from the tenant. If they do not have the funds available, you can’t collect them immediately and may have to wait to receive them.

Lack of Evidence

When it comes to small claims court, evidence can make or break a case.

If you don’t have adequate documentation regarding the state the property was in before the tenant’s lease, the costs of the repairs needed, or even the rent owed to you, you may not win the case.

Your Tenant could File a Countersuit

If you take your tenant to small claims court, the tenant can then countersuit you, even if you have done everything correctly and by the book. Always remember this when deciding to file with a small claims court.

Regularly Inspect the Property

Monitoring the condition and treatment of your rental property is essential to maintaining the home. That’s why regular inspections of the property are so necessary. As a landlord, you always want to respect your tenants’ privacy, so keep your inspections to a few times a year and always give your tenants adequate notice.

Suppose you plan to conduct regular property inspections. Include this in the lease agreement, so your tenant knows what to expect. Check for pet odours, stains, wall damage, water damage, and working appliances during these inspections.

Conduct a Move-Out Walk-Through Property Inspection

When your tenant moves out of the rental home, conducting a thorough walk-through inspection is always a good idea. As a landlord, you should notice property damage that occurred during the tenancy.

A walk-through inspection can help you determine how much of the security deposit you need to use to cover damage costs. After this walkthrough, you should provide your tenant with an itemized list of repairs paid for using the deposit.

Bottom Line

A security deposit can help you avoid financial losses as you navigate the management of your rental home. If you have any further questions regarding this topic or any other aspect of your property management needs, contact our team at Leenan Property Management today.