Tenant damage is something all of us worry about. This is why, as property managers, we spend so much time with tenant screening, investing in tenant relationships, conducting routine inspections, and putting together a strong lease agreement.
Security deposits are a tool that can protect owners from tenant damage. But what happens when a tenant causes damage that exceeds the security deposit? This is not only frustrating, but potentially expensive for rental property owners.
Hopefully, you never run into a situation like this. Understanding how to handle something like this is critical to minimizing losses and maintaining a profitable rental business if it does, in fact, happen.
In our experience, certain types of damages are most likely to exceed the security deposit, and if you are wondering how to prevent and manage these things, we have some information for you.
Security Deposits and Their Limits
Happily, this is Florida, and in Florida, there are no limits to what you can charge as a security deposit. However, the market does have something to say about it. Charging too much in a deposit will alienate tenants and give them a good reason not to choose your property when they’re looking for their next rental home. Typically, we recommend a security deposit that’s the equivalent of one month’s rent.
The security deposit’s limitations are important to understand. You can use it to cover any unpaid rent that the tenant owes after they leave. You can use the deposit to pay for cleaning expenses or to haul out any trash or items that they left behind. However, the deposit is not meant to cover normal wear and tear, such as minor scuff marks on walls or slight carpet wear. Landlords cannot use the deposit to fix damage that is the result of everyday use.
Types of Property Damage That Could Exceed the Security Deposit
While the tenants we place are generally responsible and treat rental properties with respect, we know that there are owners who find themselves dealing with a tenant who causes damage that goes far beyond what the security deposit can cover. Below are several examples of damage that could easily put you over the amount you’ve collected.
- Structural Damage
Structural damage includes issues that affect the integrity of the property itself, such as broken windows, broken doors, or even damaged frames. If a tenant breaks a window, door, or the structural elements surrounding them, the cost to repair or replace these can quickly surpass a typical security deposit. Depending on the extent of the damage, structural repairs may also require licensed professionals, leading to higher costs. There are also walls and foundations to worry about. If tenants cause cracks in the walls, or foundation issues arise due to improper alterations, such damage could exceed the security deposit.
- Water Damage
We generally don’t think about water damage as something tenant-caused. Usually, it’s due to sudden leaks or even tropical weather. But, tenants who neglect a plumbing issue can be a problem. There could be extensive water damage to floors, walls, and ceilings. We have also seen situations where tenants cause flooding from appliances like washing machines, dishwashers, or bathtubs. This may lead to severe water damage and mold issues, which are costly to repair. Plumbing problems can be a tenant’s financial responsibility when there is negligent behavior. For example, if a tenant leaves a bathtub running and the water damages the floors, this could easily surpass the security deposit amount.
- Extensive Carpet or Flooring Damage
Tenants seem to be rather good at causing deterioration and sometimes damage to the floors of rental property. While minor carpet wear and tear is normal, excessive damage can lead to a significant cost burden for landlords. Examples of what you won’t consider to be normal wear and tear include:
- Stains, burns, or tears. If tenants cause large stains or burn marks in the carpet or floorboards, perhaps from cigarette burns, paint and markers, or dropping heavy objects, the cost to repair or replace the flooring may exceed the security deposit.
- Pet damage. If a tenant has pets and fails to take proper care of them, pet damage (scratching, chewing, or urination) could lead to costly repairs or the need for complete floor replacement. Make sure you’re charging a pet fee or a pet deposit in addition to a security deposit if you want to avoid paying for pet damage that the security deposit did not cover.
A good move-in inspection report will accurately document the condition of your floors, whether they’re carpet or hard surface. This will help you with any disputes that may occur with the tenant around the security deposit at the end of the lease term.
- Unauthorized Renovations or Alterations
Despite what your lease agreement may say, you may find that your tenants have made significant alterations to the property without permission, such as:
- Moving walls or installing new appliances. This can lead to structural damage or additional costs to restore the property to its original state. If these renovations are extensive or performed improperly, the costs to fix them can surpass the deposit.
- Paint or wallpaper removal. Some tenants may use inappropriate materials or methods to alter the appearance of walls, leading to peeling or damage that requires professional repair.
You want your tenants to feel like they’re living in a home that is all theirs. However, protecting your property and your profitability is important, which is why you need to conduct inspections and take note of any unauthorized alterations that may have been done.
How to Recover Damages Beyond the Security Deposit
If damages exceed the security deposit, landlords are entitled to seek recovery from the tenant, but it can be a complicated and often uncomfortable process. Here’s what we recommend that property owners in this situation do:
- Review the Lease Agreement
The lease agreement should outline both the tenant’s responsibilities and your rights as a landlord. If a tenant has caused damage that exceeds the security deposit, make sure the lease provides language that holds them responsible for repairs or replacement costs beyond the deposit.
- Attempt to Resolve the Issue Amicably
Start by discussing the damages with the tenant in a calm and professional manner. Depending on the severity, you may want to negotiate a payment plan or settlement. If the tenant agrees to pay for the damage, ensure the agreement is documented in writing. This is the ideal situation, and if you’ve provided a great rental experience and maintained a good relationship with your renters, it’s possible they’ll agree to behave responsibly.
- Deduct from the Security Deposit
If the damage is within the scope of the security deposit but still exceeds the deposit amount, you may be able to deduct up to the deposit’s full amount, but any remaining unpaid balance must be pursued through legal means. Send an itemized statement within 30 days of move-out, explaining why the deposit was withheld. Include supporting documentation to prevent pushback from the tenant.
- Take Legal Action
If the damages go beyond the deposit and the tenant refuses to pay, you can file a claim in small claims court for the outstanding balance. Keep detailed records, including:
- Photographs of the damage
- Repair or replacement invoices
- Communications with the tenant regarding the issue
- Check Your Insurance
You may have coverage available through your landlord insurance policy, so make sure you check it. Depending on the policy, it may cover certain types of tenant-caused damage. Review your insurance policy to ensure it provides sufficient protection for damage that exceeds the security deposit.
Preventing Property Damage Beyond the Security Deposit
Prevention is the best way to avoid dealing with excessive property damage. Here are some of the things we do to minimize the risk of damage exceeding the security deposit:
- Screen Tenants Carefully
Thoroughly screen your tenants before renting out your property. Background checks, credit reports, and landlord references can provide insight into their reliability and past behavior.
- Conduct Regular Inspections
Perform routine inspections of your property to catch damage early. This not only helps you identify potential issues before they become expensive repairs but also signals to tenants that you’re vigilant about maintaining the property.
- Provide Clear Guidelines and Tenant Education
Be explicit with tenants about your expectations for property maintenance and proper usage. A clear and detailed lease agreement can reduce misunderstandings about what constitutes acceptable wear and tear.
Educate your tenants on how to care for the property, especially in areas prone to damage, such as plumbing, flooring, and appliances. Regular communication and providing a guide to maintaining the property can reduce the likelihood of major damage.
Dealing with property damage that exceeds the tenant’s security deposit should be a rare occurrence. If you’re not sure you have the time, expertise, or resources to protect your property from potential tenant damages, work with a professional property management team like ours. Contact us at Anchor Down Real Estate & Rentals, and we’ll talk about the services we can provide to protect your investment and your tenant’s deposit.
