As a landlord, it’s natural to charge a security deposit at the beginning of a lease. This fee is usually refundable and serves as insurance against unpaid rent and tenant-related damage expenses.
However, it’s always possible that damages and lost income costs could add up to more than the tenant’s deposit. In that case, how should you ensure you make back your lost income?
This post holds the answers! Continue reading for our full guide.
What to Do
1: Do the Math
The first step to take is to come up with an itemized list of deductions. Here, you will sum up all the damage-related expenses incurred during tenancy that go beyond normal wear and tear, as well as outstanding rent payments.
In the case of damages, the following can count towards deductions.
- Damaged fittings such as door handles, window panes, or light fixtures.
- Stained carpets.
- Dead appliances.
- Pet odor, pest infestation, or even repainting stained/chipped walls.
This step is important, as you must consider every expense before issuing a demand letter. If you don’t, any expense that’s unaccounted for will be on you; resulting in unavoidable losses.
After deducting all damage-related expenses from the deposit, you’ll know how much remains to cover the tenant’s unpaid rent
Additionally, when coming up with an itemized list of deductions, photographic evidence and receipts for repair/replacement costs are paramount. This allows you to clarify your reasons for withholding the deposit and can help address any future disputes.
2: Initiate a Conversation with the Tenant
Once you know exactly how much the tenant owes you, reach out to them. Communication is key in upholding your landlord-tenant relationship.
Here, it’s important to be cordial, empathetic, and receptive to avoid unnecessary escalation. Try to find out why your tenant hasn’t been able to pay their rent and how they plan to amend the issue.
Ensure the renter reviews your itemized list of deductions from the deposit and verifies it. If all goes well, you’ll create a comfortable payment plan or reach a settlement that works for both parties. Make sure you document the conversation and any agreements in writing.
3: Issue a Demand Letter
If a mutual agreement is not reached, you are allowed by law to send a formal demand letter to the tenant. This letter should contain the following information:
- Both you and your tenant’s names and contact details
- The total amount of owed rent
- Late fees, fines, or interest accrued
- The original rent due date
- A payment deadline
- Any consequences of continued non-payment e.g. legal action
- The location of the property, house number, and/or address
Remember, a demand letter is legally binding. And as such, must be written in a firm, respectable, and professional manner that conforms to your local landlord-tenant laws.
When sending the letter, it’s advisable to use a trackable delivery method or certified mail. That way you can easily provide proof of delivery when required. Moreover, remember to include supporting documents, receipts, rent payment statements, invoices, and a copy of the lease agreement.
4: Try Mediation
In-court dispute resolution can be quite a hassle and time-consuming, and it will be better for both parties if such steps can be avoided. If a one-on-one conversation fails and your demand letter goes unanswered, mediation is often the next best step.
Sometimes, having a neutral third party can help to bridge the communication gap between you and your tenant. Mediators tend to offer a unique and unbiased perspective, which can make it easier for both parties to find common ground on the matter.
5: Take Legal Action
If the above strategies prove ineffective, the only remaining option might be to take legal action. In most cases, such a dispute should be filed in a small claims court.
While this is usually an effective way to recover unpaid rent, court cases can be quite inconvenient. Some of the downsides you should expect include:
- A lengthy process.
- Case filing fees.
- The need for comprehensive documentation and proof; as a lack of evidence can be detrimental to your case.
- The risk of being countersued by the tenant.
- No guarantee that you’ll quickly recover your funds as soon as the matter is concluded.
Avoiding Future Problems as a Landlord
Do Proper Tenant Screening
The quality of tenants you get depends on how thoroughly you screen them before signing the lease. A comprehensive screening process can help you spot and accept quality tenants who won’t stress you out.
The best way to do this is by:
- Verifying employment
- Checking rental histories
- Conducting background checks
- Assessing their financial stability
Do Routine Inspections on Your Property
An inspection should be done before a tenant moves in to assess the condition of the property. Thereafter, you should do routine checks to spot and address any major issues as soon as they pop up.
To be on the safe side, legally, include the inspection schedule in the lease agreement. And give your tenant(s) prior notice for any scheduled inspections.
Bottom Line
Evidently, there are numerous options to pursue when a tenant’s deposit doesn’t cover unpaid rent; from simple communication to taking legal action. However, one thing to remember is that documentation of each step is important to have in the case of any disputes.
For expert advice in any aspect of property management in the Dallas/Fort Worth area, McCaw Property Management can help. We’ve been helping property managers achieve peace of mind since 2003. Get in touch to learn more!