How to Handle Tenant Deposit Disputes

angry_phoneAs a green, freshly minted apartment landlord with zero property management experience in 1990, I one day received an abrupt and stark introduction to the world of security deposit disputes. This occurred roughly three days after mailing my first deposit accounting to a departed tenant, from which damage deductions had been assessed.

The tenant response was a phone call of raw anger, yelling, threats, accusations of dishonesty, and some colorful language. I responded to this verbal assault with relative calm, given that I was caught completely off guard and at first, literally wondering if the tenant was joking, so ridiculous were the protestations.

I muttered short statements of fact in between the barrages of verbal hostility.

“We found fish tank rocks in the disposal and it had to be replaced”.
“Your dog left pee stains on the carpet and those had to be removed”.
“Someone punched two holes in the back bedroom door and the door had to be replaced”.

These, in my mind, were indisputable facts, not matters of subjective pettiness. I really couldn’t even believe the conversation was happening. Little did I know about the interesting psychology and visceral anger that deposit deductions evoke in some tenants.

The closest I can get to understanding is the jolt of anger I feel when I get nailed with a $2 late fee at Blockbuster. It’s rather curious. I know I was late. It was my fault. I did it. I remember dropping the movie in the slot at 10PM the week before, knowing I would get a late fee.

Yet, while standing there in front of the cashier, paying for a new movie and being told I owe $2 late fee for the previous movie, I feel an almost uncontrolable urge to argue about it, to demand to know “which movie” it was (even though I already know). When was it due. And to say how stupid the fees are and how it was better the old way when there were no late fees.

Lucky for me, the person in line ahead of me already made a complete ass of themselves doing all of the aforementioned, and holding up the line in the process, so I control myself and make no mention of it other than to say “ok” when the cashier asks if I want to pay the late fee now.

But it nevertheless is a curious feeling that defies logic. The notion of feeling victimized and abused for being held accountable for not keeping an agreement for which I had full and complete control, but nonetheless did not perform as required.

So, if a perfectly sane person such as myself, who believes 100% in personal responsibility and accountability, and who tries to live his life in accordance with those principles, can feel an emotional jolt of anger over a $2 late fee at Blockbuster, I can only guess that a tenant opening up a deposit refund statement might possibly feel something as strong or stronger upon seeing hundreds of dollars in deposit deductions, no matter how justified and no matter how much they may have been expecting the outcome.

So, my point in opening up with all of this is simply that, as landlords, it should come as no surprise when we receive angry protest from a former tenant who wants to argue over deductions that were made from the security deposit. I view it almost as a sort of temporarily insanity that comes over the tenant, and I don’t take it personally.

And, as a landlord, knowing that this situation is more likely than not, no matter how careful and fair you thought you were being in assessing damage deductions, you should have a clear and pre-established set of steps to follow when dealing with such disputes.

Step 1 – Set Expectations in Writing
I won’t cover the entire topic here, but in a previous blog article I wrote entitled “Why I Never Do Move-out Walk-throughs with Departing Tenants“, you’ll find a move-out instructions letter that I send to all departing tenants explaining what must happen if they wish to avoid deposit deductions. Feel free to borrow from mine or make your own, but have something that you send to tenants upon receiving a notice to vacate. This helps the tenant understand what needs to happen, and it serves as the first in several simple steps that protect you legally and make it more difficult for a tenant to paint you as an unreasonable landlord out to rip people off.

Step 2 – Be Fair
After the move-out, when you first go into the property to check the condition (without the tenant by the way – they are out of the picture at this point), be fair to begin with and know that whatever deductions you are making might have to be justified and documented in front of a JP Court judge. Don’t be petty or frivolous, or try to claim damages for things that are really just normal wear and tear.

You have to actually spend the money curing the conditions the tenant caused. You can’t simply “keep” part of the deposit if you didn’t actually spend it. You must have receipts or invoices from vendors documenting the expenses and the work completed. If you did the repairs yourself, document the dates, time and hours spent and keep  receipts for materials.

Do not try to charge more than what it would have cost if you had hired someone. It’s not the tenants fault, for example, if you are a really slow painter who charges $50 per hour. That won’t fly in court. So, just don’t be stupid or greedy. This is how “bad” landlords get in trouble and cause the rest of us to be mistrusted.

Step 3 – Provide a Written Accounting of Deduction
In Texas, you have to provide the tenant with a deposit refund and an itemization of any deductions within 30 days of move-out. Your written accounting of deductions does not have to be fancy. It can be hand written on notebook paper. Just make sure it includes the appropriate information such as the names of you and the tenant, property address, date of move-out, date the accounting is being mailed, the original deposit amount, list of items and amounts of deductions, remaining balance and the amount being returned to the tenant or the amount being demanded from the tenant if the deposit did not cover all costs.

Remember, the frame of mind for a professional landlord (which you should consider yourself to be even if you own only one rental home) is that everything you produce in writing or say to a tenant can be introduced as evidence if you are sued. Ask yourself as you proceed whether or not your efforts will make you look better or worse in court. More on that in a moment.

Step 4 – Do Not Debate with the Tenant over the Phone, Ever
When I mail a deposit refund to a tenant, my hope is to never hear from that tenant agin, regarding the deposit. That’s how it goes with about half of our deposit returns. The other half will call “with a few questions” about the deductions. This is when you have to be disciplined and avoid getting into telephone debates with tenants.

My policy is that I absolutely do not discuss deposit refunds and deductions over the phone, period. It ain’t gonna happen under any circumstance whatsoever, at all. Instead, I cordially invite the tenant to submit any questions about deductions in writing, and I promise that I will respond quickly to whatever it is they have questions about. Usually, this does not end the conversation and I have to repeat the same thing a few times, which I’m happy to do, and we can discuss the process itself, but I never, ever, under any circumstance, allow myself to be drawn into debate over specific deduction items.

This steadfastness often causes some tenants to become extremely irate and hostile because they feel like they are being stonewalled and given the brushoff, which isn’t the case at all. But they sometimes start yelling and threatening to sue, telling me I’m the worst landlord they’ve ever had, saying I’m a crook, etc. – and worse.

But that’s ok. Remember, we’re talking about a normal human reaction that isn’t always rational. Instead of getting angry in return, or engaing in battle over the phone, I simply explain that we have a process by which the tenant can ask the questions and receive answers they want, but that the process is a written process and will not happen over the phone.

Why not just explain it over the phone?

Because, again, knowing that landlords, as a business class, are sued more than anyone else in small claims court, I have to assume that each and every deposit dispute represents a potential court case. Knowing that, I want to take away from the tenant any ability to open up a “he said, she said” set of accusations, which are difficult to defend against, even when they are blatant lies.

Instead, I want everything 100% in writing so it can simply be handed over as evidence and I can rightly state that the written communication represents ALL communication about the disputed items.

Thus, there shall be know “he said this or that”. It’s all in writing, every bit of it. Frankly, the tenant should want the same, so I’m actually doing them a favor by making it so.

Step 5 – Respond Politely and Thoroughly in Writing
A common gripe is about the cleaning charges. Tenants will proclaim “we left that house cleaner then when we moved in”. Why those specific words are uttered in that specific order by so many departing tenants, I don’t know. This will be the same property for which the cleaning crew calls me to get authorization to bill for a “heavy” clean, so dirty is the property, and especially the oven. But the tenant really does belief it was left cleaner than when they moved in and will want an explanation of how it could be otherwise.

Other common deductions we make are for hauling trash, replacing dirty A/C filters, curing deficiencies in yard maintenance, repairing cosmetic damage, carpet stains, damage to walls and paint that are well beyond normal wear and tear.

I generally keep the written explanations fact-based and short, and send a copy of the invoice we paid. Remember, this response might be read by a judge, so that’s who my target reader is, not necessarily the tenant.

The reply might say something like “the A/C filter was dirty and, as outlined in your lease agreement, this is your responsibility. The charges are justified and appropriate”.

Same with lawn care, damages, etc. Short and succinct, absent opinion or commentary, just the facts.

Finally, in a response, I’ll end with something like “I am sorry you feel like the deposit deductions were unjust. I hope this response helps you see that the deductions were made in accordance with your lease agreement and in compliance with Texas Property Code, and I hope you find this response sufficient”.

That’s it. Now I’m done. I generally ignore any further attempts to debate to matter, unless a 10 Day Demand Letter shows up, which is the first required step a tenant must take in order to file a small claims suit. But unless there is new information that needs to be added to the initial response, or new questions being asked that I didn’t address in my initial response, I simply don’t respond to further attempts to engage in debate.

Having accounted back deposit refunds to at least 2,000 Austin tenants since 1990, the above approach has resulted in a total of three disputes ending up in JP Court. In all three of those the tenant lost. I currently have a 4th one in process, which I will win as well, because the evidence does not support the claims being made by the tenant.

With a track record like that, I don’t see any reason to change how these matters are handled.

Whether you are a professional property manager, or a private landlord, your greatest exposure to legal hassles lies in the deposit return process (2nd biggest is how you handle repairs – a separate blog I should write soon). As such, that process should be controlled by you and nobody else (other than Property Code of course). Every aspect of it should be documented and justifiable. If you keep your side of the street clean, don’t allow emotion to take over, don’t sink into no-win debates with the tenant, and keep all communication in writing, you make yourself virtually bulletproof against frivolous accusations and lawsuits.

It’s hard, I know. I bite my lip and stay quiet a lot when on the phone with a departed tenant. But you have to stick with the process and not deviate or be dragged onto a different playing field.

10 thoughts on “How to Handle Tenant Deposit Disputes”

  1. Great article, Steve. It really helps to remember the mindset of the tenant in these cases, as you point out here, so that landlords don’t get emotional in response.

  2. I’ve been in the landlord business for almost 15 years and have not had a court appearance for deposits yet. What do you do in cases where the tenant threatens physical harm to you and your family or when they libel you on the internet? I have already figured out the same regimite for handling deposits as you have but on occasion I still get the irrate tenant.

  3. Thanks for the good blog posts.

    I recently dealt with a landlord that attempted to withhold some of my deposit after move-out, despite the fact that he did not send an itemized accounting of deductions within 30 days of move-out. This is against the law in Texas and I sternly informed the landlord via email that I would be taking them to court for nearly 3x my deposit if they didn’t send me the rest of my deposit. Needless to say, I received the rest of my money back within a week and never heard from him again.

    It always helps to stand up for yourself.

  4. Steve – great article!
    You’d mentioned 10-day Demand letter – does it mean the Tenant in Texas has 10 days to dispute the itemized charges? If the 10 days pass, they are no longer able to dispute? if so, can you please provide me the State law pertaining to this? I’m all about facts as well and am dealing with a tenant move-out right now. In my case, Tenant had pets noted by my selling agent that were unauthorized. They were asked to remove but did not. Since this was asked by a licensed agent verbally and documented by her email communication to me, would that qualify for the number of days of violation from their defiance to move-out date? Thanks! Your article is extremely helpful

  5. The policy of Google is to put a note after the complaint and leave it there on line even if it is an outright vicious letter. In our case it was someone we never had as a tenant,do not know and from a competitor,
    On Yelp, good revues are yanked from after two weeks and bad reviews stay for ever, in our case 5 years. They had asked us for $140 a month 1700/yr to advertise and when we said no thanks,our 5 stars when to 1.
    It seems to me that it is black mail and a shake down.. Any good reviews (ordered by court) are put on a back page which nobody sees. I have heard similar stories from 4 out of 5 who list there.
    I was quoted up to $100,00 to $300,000 to take them to court. Yelp, Google and Rip off ect. have large legal departments or retained that are defamation attorneys.

    Your ideas are good in a Non-Internet environment but as you know you do not have to be taken to court to have your business ruined. Thank you Sholom Fine LA Furnished Apartments Los Angeles

  6. Steve,

    I am a pm in Nevada, I just wanted to say that I find your methods very smart. In fact they are almost identical to ours. The most difficult part of this job is the deposit move out process. I changed procedures much the same way you did, through bad experiences. Few managers here operate the way that you and I do and it’s refreshing to know that someone else out there “gets it” and it makes me feel better about our procedures. Never been to court in 7 years but I know it’s coming. It’s inevitable. I hope we have as good of luck as you have had winning when the time comes.

    Thanks again

  7. Steve – do you ever compromise with a tenant and agree to refund some part of their disputed charges in an effort to calm the situation and reduce the likelihood of a court case?

  8. This is a great explanation of what to do when a lease term comes to an end and it is time to deal with security deposit deductions. Since there are so many stringent laws regarding the collection and use of a tenant’s security deposit, it may be wise to employ the help of an experienced property management company. They can handle all of the things mentioned above – stating the procedures in writing, providing deductions in list form to the tenants, and giving tenants detailed invoices. This way you know everything is being done in a legally compliant, and fair, way. Thanks again for sharing!


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