Don't risk your real estate investment by not charging tenants a security deposit. One risky tenant can result in operating a rental in the negative. Asking for security deposits gives you protection if your tenant leaves with unpaid rent, causes damage, or violates the lease.
Follow this guide on asking for, holding, and returning your tenant's security deposit.
When to Charge
The appropriate time to charge a security deposit is at the lease signing for your rental vacancy. Generally, landlords charge a security deposit equal to one month's rent. Tennessee landlord-tenant statutes don't impose a limit.
Confirm in writing that you received the security deposit. You must include the name and address of the institution holding the deposit. It also needs to outline that the security deposit is in a separate account and the details for the account.
Pet Security Deposit
If you allow pets in your rental, you may also want to charge a pet security deposit in addition to the primary deposit.
Tenants with a service animal are exempt from paying a pet security deposit. Under the Fair Housing Act, requiring them to pay the additional deposit would deny them equal access.
How to Store
Keep the security deposit in a separate account. It doesn't have to be interest-bearing, but it needs to be with an institution subject to federal or Tennessee regulations.
If you fail to do this, you forfeit all rights to keep any part of the security deposit.
Working with a property manager can make holding your security deposits simpler. Before you hire a management company, ask them about their security deposit procedures. That way, you know they will handle all funds appropriately.
When to Return
Return the security deposit within 30 days. If you attempt to contact the tenant for their new address and receive no response, you have 60 days. Once returned, the tenant has a right to ask for an audit of any deductions or claims.
If the tenant fails to file an appeal within 60 days of the security deposit return, they lose the ability to reclaim.
How to Keep
Tennessee landlord law requires you to perform a walkthrough inspection within four days before the tenant leaves. The tenant has a right to attend the inspection but isn't required to.
If tenants don't attend, they forfeit their right to contest the damages listed. Make a list that includes intentional and accidental damage.
You may only keep a portion or all of the security deposit in these circumstances:
- Unpaid rent
- The tenant caused excessive damage
- Unpaid utility bills
- Lease breaches
The security deposit may not cover all of these costs if you have a problematic tenant. That is why thorough tenant screening is crucial to reduce your risk.
Handle Your Security Deposits Correctly
As a landlord, you have a right to ask for security deposits. You must also follow the Tennessee statutes about asking for, holding, and returning the security deposit. Otherwise, you risk forfeiting your ability to keep any of it.
The team at PMI Scenic City helps property owners by managing security deposits. Our expert team protects your best interest by following the law and performing thorough property inspections.
Reduce your landlord risk by letting the team at PMI Scenic City handle your security deposits.