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Landlord challenges faced when dealing with security deposits

On Behalf of | Jul 10, 2023 | Landlord-Tenant Law |

With the cost of housing and commercial properties as well as all the expenses associated with repairing properties in San Francisco, security deposits can play a significant role in your rental business. They can help you offset damage caused to your property by tenants, and they can protect you against unpaid rent.

Yet, security deposits become problematic all the time for San Francisco landlords. Make sure that you understand how to navigate this intricate issue so that you can take the steps necessary to protect your interests and avoid allegations of wrongdoing.

How much can you collect in a security deposit?

Under current law, landlords are able to collect up to two months’ rent as a security deposit for unfurnished units, or three months’ rent if the unit is furnished. Given the cost of rental property in the San Francisco area, this can be a significant sum.

It’s worth noting that all refundable deposits, including pet and cleaning deposits, are considered part of the security deposit. You also can’t build in any non-refundable deposits into your lease.

That said, it’s worth noting that the state legislature proposed Assembly Bill 12 this year, which seeks to limit the collection of security deposits to one month’s rent, even in cases of furnished properties. If this bill or something similar eventually becomes law, then practices will be changed considerably.

Pre-move-out inspection

Once your tenant notifies you of their intent to move out, you’ll need to provide them with written notice of their ability to have a pre-move inspection. This gives the tenant the opportunity to make repairs to the premises before moving out to recover as much of their security deposit as possible.

After the inspection is conducted and a final determination is made on the security deposit, you’ll need to provide an itemized form that specifies what is being charged against the security deposit.

In some instances, you’ll be expected to amortize the cost of more expensive repairs, such as flooring and paint.

For example, instead of charging the tenant for the entire cost of replacing carpeting that has simply reached the end of its life expectancy, a court would more likely require you to only withhold from the security deposit the amortized cost in light of how long the tenant resided on the premises compared to the carpet’s expected life expectancy.

Other issues pertaining to security deposits

There are a whole host of other issues that you might face when dealing with a security deposit. For example, you need to make sure that lease language gives you the broadest use of security deposit funds, and you need to understand how security deposits are supposed to be returned to tenants.

You also need to account for the use of security deposit funds if they’re not returned to the tenant. If you make a misstep here, then you might be found liable for significant damages for withholding a security deposit in bad faith. Therefore, throughout the time during which you’re dealing with a security deposit, you should remain in contact with the tenant and be clear in the actions that you’re taking.