When to Deduct from a Security Deposit

Written by Connor Swalm

Jaime: Hello, I am Jamie Swalm and I’m here with Connor Swalm and we are the hosts of the Landlord’s Resource. Brought to you by Swalm Property Management where each week we educate and empower landlords just like yourself. Connor, how are you doing today?

Connor: I’m doing great today.

Jaime: Alright, well today we’re going to be talking about security deposits. So security deposits are a very important part of being a landlord. Anytime that you tenant one of your properties, you always collect a security deposit and the Delaware Landlord Tenant Code is very specific about the purposes of a security deposit. So we’re going to go over today the three purposes of that security deposit based on the Delaware Landlord Tenant Code. Alright. So what is the first purpose?

Connor: So in the Delaware Landlord Tenant Code, it outlines very clearly exactly what a security deposit is, what it should be used for, and the reason it exists. The first reason that it states, and I’ll read this verbatim, is to reimburse the landlord for damages caused to the premises by the tenant which exceed normal wear and tear or which cannot be corrected by painting and ordinary cleaning. So that is an exact quote, normal wear and tear and which cannot be corrected by painting and ordinary cleaning. The second reason that we see in the Delaware Landlord Tenant Code, is to reimburse the landlord for reasonable expenses incurred in renovating and rewriting the premises caused by early termination of the lease, but it shall not exceed one month’s rent. So the security deposit, if you’re a landlord in Delaware, your security deposit cannot exceed one month’s rent. There are certain cases where you can have your security deposit increase over that, but not more than two months rent, but then you have to give it back at a certain rate for a certain time, depending upon how the tenant is doing and if you notice that they’re behaving properly in your property. The third reason that we see in the Delaware Landlord Tenant Code, is to pay the landlord for unpaid rent due under the lease, including late charges and rent due for early termination or abandonment of the lease. We personally have an early termination cost where you’re required to pay the remainder of that lease, or I think it is two months of rent on top of the security deposit so that if you terminate, I mean if you sign a lease that is a legally binding document, you’re required to fulfill the terms of that which for us is you’re required to live in the property acceptably for at least one year. And then you’re more than welcome to leave after that time, but for the year you are the renter at that property and you need to be paying rent at the property because we’re not allowed to put anyone else in the property, but you have that document and while we have that agreement with you.

So those are the three exact reasons verbatim from the Delaware Landlord Tenant Code. I’d highly recommend, if you don’t know what I’m talking about, hop online, google Delaware Landlord Tenant Code. You’ll get a government resource and you can read through it yourself. It’s not that long, especially the shorter version that you’re required to give tenants. I’d highly recommend reading that as well. It outlines everything you need to do, everything your tenant needs to do and then you’ll also know how it tenant can be expected to act because they’re required to have that and supposedly read that before they inhabit anyone else’s property as well.

Jaime: Now the second and third reason is pretty straightforward, not a lot of interpretation there. The first reason, however, is usually the one that creates the most confusion. That actually often creates a court situations where there are some differences of opinion and the real issue is what is the definition of normal wear and tear. It’s not uncommon for a landlord when a tenant moves out to feel like there’s damage to the property that is beyond normal wear and tear and not uncommon then for the tenant that is moving out to feel like the damage is normal wear and tear. So the issue is what is normal wear and tear, what can you as a landlord reasonably expect to collect on in terms of damage? So let’s go ahead and cover that.

Connor: Before we jump into that, that’s an interesting point that I’d like to touch on. I go to the JP courts, I go file, I go through the eviction process or if we have to bring another dispute to the courts, I’m the one that handles that. And most, if not almost all of the disputes that I see are over security deposits. It is not an eviction, it is not someone who terminated the lease early and then didn’t pay. It is literally that the security deposit, the tenants feel was deducted from unfairly and the landlord feels like they did not deduct enough. I understand both sides of the equation. Sometimes the tenant doesn’t feel like they cause damage when they really did. For instance, we’ve had some issues where there are unregistered pets living in the property and the owner has to replace the floors as a result and the tenants feel like they should not be responsible for it.

And there were other cases as well where the tenant is right and that the landlord tried to charge them for paint or for cleaning, and the landlord tenant code clearly states you’re not allowed to do that. So like he said, the second and third reasons are pretty straightforward. Why are they straightforward? Well, the second reason really just states if you terminate your lease early, the landlord has a right to recoup the losses from doing that. So it is a very lengthy process to market a property, to show the property, and to properly select a tenant and put them in there. That is a very lengthy, costly process for the owner and for the property manager. So if you terminate your lease early after going through all of that, then as a landlord, you’re able to recoup some of your losses.

So that’s pretty straightforward. The next is if a tenant skips town, doesn’t pay rent, the security deposit can be used to collect that rent. So in some states, especially if you look at Pennsylvania, you’re allowed to take first and last month’s rent when they move in. So most of the time between the security deposit, first and last month’s rent, a tenant is required to have three months rent as a down payment, if you will, in order to tenant a property. In Delaware, we’re not allowed to do that. We don’t collect last month’s rent. So sometimes tenants feel as if they don’t want their security deposit back or they just feel like they don’t have to pay rent for the last month of their lease and then they skip town without paying the last month. And then this specifically states that we’re allowed to take your security deposit in lieu of that, even though it will never cover the damages and the rent, we’re allowed to do that. So it gives the landlord something so that they’re not completely at a loss when a tenant doesn’t want to pay. So then why is the first reason is not clear? Well, like we stated earlier, it’s really down to a certain level of interpretation where it says damages caused to the premises which do not exceed normal wear and tear. That’s not very specific. It does not say if there are certain stains on the carpet or a certain amount of scuffs on the stairs, it’s really up to the consideration of the tenant or the landlord and the judge if you ended up having to go to JP court to get this resolved. We’ve seen all sorts of things covered and not covered by normal wear and tear, but it’s generally safe to say, if you could throw a new paint of coat on it, if you can clean it, if you can get a deep clean and resolve the issue, that is not allowed to be deducted from the security deposit.

Now, we do have a policy where for some of our owners, we deep clean the property beforehand. We give the tenant evidence that that has happened and then on move out, the lease states, the tenants are required to return the home to us in the condition that we gave it to them so that they are required to get the home cleaned in at that level or do it themselves, which for most tenants is not a very easy thing to do because we pay a professional company to come in and clean everything. So if you provide the home in a certain condition, the tenant is required to provide the home back to you in that same condition. So that’s something to also keep in mind and then so normal wear and tear or which cannot be corrected by painting and ordinary cleaning.

Now this does not cover things like if a tenant hung a million pictures in their home and there are holes in the wall, you can’t just paint over that and a judge would know that. Although for some tenants, that is normally what we see as a huge dispute, that nailing holes in the wall is not an issue. Especially they don’t understand that a landlord and a homeowner have to pay someone to come fill in those holes or spackle it or have someone in their company come and do that. And sometimes that can get expensive and sometimes the holes can’t even be solved by doing that. You have to get someone to come re-drywall or re-mud and tenants don’t understand that. So there are definitely cases where it’s clearcut and there are cases where it’s not. What we consider normal wear and tear here at Swalm Property Management is if there’s normal wear on the carpet. So typically what we do is, let’s say carpet has an average lifespan of 10 years before it needs to be replaced. If a tenant moves in there for one year and it’s completely destroyed, that is not normal wear and tear. If a tenant moves in there and there are scuff marks, tread pattern or whatever because there was like a place where they walked all the time. That’s pretty normal, right? You can’t deduct for that. If there are normal scuffs on the walls and the floors, dings on the walls or if you will, that’s not deductible. A normal wear on the appliances, I mean as long as the appliance still functions, if it was brand new and as long as it looks like it’s in good condition, like they took care of it, cleaned it regularly, all these things, then we wouldn’t deduct from the security deposit for how the appliances looked. Also any damage that was most likely caused by normal appropriate use of the item in question. So if you’re thinking, let’s say there’s a banister going up to the second floor, if it’s damaged, but it looks like it was caused by normal appropriate use, you know, they didn’t have kids or dogs running into it, hanging off of it, jumping over it, doing anything crazy with it, and it didn’t break as a result of a normal wear and tear than we wouldn’t deduct from that.

Jaime: Going back to the holes in the wall. We actually had a situation where we were both in JP court and one of the homes that we manage, the tenant had moved out and had spackled over some pretty significant holes in the wall. And so the owner wanted to hold back some of the security deposit, which we did. The tenant did not feel that that was appropriate. We ended up in JP court over it. And as the judge was sitting there, there was one point where we couldn’t come to an agreement. The judge actually said, “okay, before I rule on this, I’m going to walk out and I’m going to let you to work this out. I’m going to come back in and if you cannot work it out, then we’ll go ahead and go to trial.

But I would strongly suggest that you work it out. And so the judge actually walked out and actually it was, you who kind of ended up working it out. We ended up with an agreement and at the end of the day, nobody was happy. At the end of the day, the owner wasn’t really happy because the owner felt like they needed to be compensated for everything. At the end of the day, the tenant wasn’t happy because the tenant had to pay for some of the damages as well. So that’s a real time example of a disagreement between a tenant and a landlord over the condition of walls and how they’re left.

Connor: Yeah, absolutely. One thing to note is it’s already expected that you’re going to paint and clean regardless of what the tenant did or did not do to the home that is already expected of you. So largely, a lot of these disputes can be corrected by training and educating the owner that you either work for or if it’s yourself, educating yourself on what can and can’t deducted properly. So there is going to be some costs of turnover. That fact is unavoidable, whether or not you waste your property manager’s time in court or perhaps your own money, paying them to represent you there to try and recoup some losses unfairly if a judge rules against you would definitely not be in your best interest. So we always tell an owner we’ll do the inspection, we’ll make note of it. We have the move in inspection, we have the move out inspection, we are the experts. We know exactly what we can and can’t deduct from the security deposit. We know what we should be doing. We know how to explain this all to the tenant and we know how to get the tenant to feel like they’re being treated fairly. And also keep the owner’s best interest in mind because at the end of the day, that is our goal, to keep the owner’s best interest in mind and to also to secondarily provide a nice place for someone to live. That’s exactly our goal. And we touched on this before where we would train an owner correctly, it resolves a lot of your issues. If you educate yourself correctly, if you’re your own landlord, you resolve a lot of these issues beforehand. All it takes is a little bit of reading, reaching out to people who know what they’re doing and then you could really find out what you should and should not be doing, which, like I said again, it’ll prevent a lot of headaches.

Jaime: And it’ll save a lot of money. I mean, very often we’ll talk to landlords who are reluctant to hire us simply because of the property management fee. And then because of just a lack of education, they’ll end up in a situation where it costs them far more than they ever would’ve paid for property management because of the situation with the security deposit and move out. So alright, well thanks for joining us for another edition of Landlord’s Resource and how can people get ahold of us if they want to know more?

Connor: If you want to know more, you could look at our website, swalmpropertymanagement.com and you could fill out any of the forms there to get in contact with me or you could also look at all of our content that we have on there. We have a blog, a podcast, some resources for you guys. If you want to reach out, our phone number is right there on the website and you could also email me personally, connor@swalmrealty.com. I’d be happy to answer any questions, get in touch with you and see what we could work out or talk about and how it can help you.

Jaime: And if you’re listening to us on Itunes, just go ahead and pop over to Itunes, give us a review and we look forward to seeing you on future episodes. Thank you.