Obtaining a security deposit is common in the rental real estate field. Sadly, property damage is an unavoidable part of life for landlords and property managers. Security deposits protect the owner or manager if the tenant fails to follow the lease agreement. There are rules for how a security deposit can be used and the period of time that the money must be returned within by law. There are standard procedures for making sure the rules are followed and the money is available to the landlord under certain conditions and the tenant at the end of their lease, otherwise.

This can be a lot to keep up with. Security deposit management is one of the many services a good property management company can provide to save landlords some time, energy, and even money.

Security Deposit Management Basics

Move In-Move Out Form

A thorough walkthrough with your tenant prior to move-in can ensure that all parties are on the same page. Noting the condition in writing and having the tenant sign the document can minimize disputes regarding existing damage vs. damage done by the tenant. Video documentation of before and after can also be extremely useful if disputes do arise.

Know the Laws

It’s also VERY important that you don’t discriminate, in terms of your security deposit. Make sure you have the same policy for all tenants.

By law, the security deposit must be deposited into a specific account and not an account with personal or business funds.  Each year that this account yields interest the landlord must show interest made and pay that back to the tenant. If they cannot show interest amounts then it gets paid as 5% of the amount saved in the account.

To understand the exact verbiage in the law, here is an excerpt from the Massachusetts security deposit statute below:
“A residential real property lessor who holds a security deposit pursuant to this section for a period of a year or longer from the term commencement of the tenancy will, starting with the first day of the tenancy, make payment of interest at the rate of 5% per year, or other such lesser amount of interest as has been attained from the bank where the deposit’s been held payable to the tenant at the end of each year of the tenancy. Such interest will be paid over to the tenant every year as given in this clause, provided, however, that in a situation that the tenancy’s terminated prior to the anniversary date of the tenancy, the tenant will get all accrued interest within 30 days of such termination…”
To read the full statute, click here: https://malegislature.gov/Laws/GeneralLaws/PartII/TitleI/Chapter186/Section15B
Using the Security Deposit

The security deposit can be used to pay for unpaid rent or damages by the tenant. These damages include holes in walls and broken appliances. The security deposit can NOT be used to pay for normal wear and tear on a property.

Returning the Security Deposit

The property manager or landlord must give the deposit back or hand in a written notice of claimed damages to the tenants within the time allowed by each state.

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