10 Rules for Deposit Refund Accounting

Posted By: Denise Myers Education , Leasing ,

One of the most common missteps for inexperienced housing providers, is the handling of the deposit at move out. WA State law requires housing providers to mail any deposit refund along with an accounting of charges for damages to the tenant within 21 days of moving out. A property condition report comparing move in condition to move out condition must be included with this statement. Now, you must have offered a payment plan before using the deposit to cover unpaid rent. These laws apply to any deposit that is held during the tenancy, including a general security deposit, pet deposit, or damage deposit. Follow these rules carefully to limit your risk of dispute and unpaid damages.

Rule #1: Do Not Access the Deposit During Tenancy

The deposit must only be accessed by the housing provider in compensation for legitimate damages after the tenant moves out. Do not access the funds for any reason during the tenancy, even if the tenant requests it. If the tenant owes you money for a repair during tenancy, simply send them an invoice. If one resident moves out and others remain, they need to work out transferring their share of the deposit on their own. The deposit refund accounting must be handled in a very specific way under the law, and it is best to not complicate matters.

Rule #2: Make Cleaning Expectations Clear Before Move Out

Use the Move Out Instructions form found at rhawa.org/rental-forms-leases-notices under Tenant Communications. Make sure the tenant understands they will be charged for any cleaning that is not done per your specifications in the Move Out Instructions. This is also a good way to clarify the move out timeline, return of keys, the designated tenant if there are unrelated roommates, and getting their forwarding address.

Rule #3: Begin Counting 21-Day Refund Period after Move Out

If you do not mail the deposit accounting and any refund by 21 days of moveout, you will lose the full deposit and a judge could award double damages to the tenant. Therefore, it is important to establish the day when the tenant relinquishes the premises back to you. RCW 59.18.280 states “Within twenty-one days after the termination of the rental agreement and vacation of the premises or, if the tenant abandons the premises as defined in RCW 59.18.310, within twenty-one days after the landlord learns of the abandonment, the landlord shall give a full and specific statement of the basis for retaining any of the deposit together with the payment of any refund due the tenant under the terms and conditions of the rental agreement.” In most cases, the first day of the 21-day period is the day after the last day of the rental term, and the tenant moves out and returns keys as planned. Here are some other examples that would count as your first day of the 21-day period:

  • The tenant tells you they need two extra days to move out after the end of the term or rental period, and you agree to allow with a prorated rent charge. Begin counting the day after they are moved out and have returned the keys.
  • The tenant moves out at some point before the end of the term or rental period but has not notified you or returned the keys and does not answer emails. Once you confirm they have moved out (serve abandonment notice and inspect if necessary), begin counting the day after you confirm the move out.
  • The tenant communicates that they are breaking a lease and moving out early. Even though their rental term legally continues until you find a new tenant, begin counting the day after they move out and turn in the keys.

Rule #4: Document “Before and After” Condition of the Property

In order to complete the property condition report, you must have a copy of the Property Condition Checklist (found at rhawa.org/rental-forms-leases-notices under the Lease Signing section) signed by the tenant at move in. If you do not have this report, you cannot legally retain any of the deposit for property damages. (Note, if you realize you are missing this report mid-tenancy, inspect and complete the form, noting that the deposit will only be used for damage between the inspection and move out.) Once the tenant moves out, complete a thorough inspection of the property and document all changes in condition by completing the move-out section of the Property Condition Checklist started at move in. Take photos of any damaged areas.

Rule #5: Only Charge Tenant When They Are Responsible

Go through the property condition list and indicate where there is damage that was the fault of the tenant due to accident, negligence, or inappropriate use. Do not charge the tenant for normal wear and tear, or damages that were resulting from a maintenance issue that was your responsibility. Also, do not charge them for damage to something that you needed to replace anyway. See examples below:

Tenant Responsibility

Owner Responsibility

Nail holes in solid natural wood finished door.

A few small nail holes on each large wall that hasn’t been painted in over 2 years.

Dirty oven range when at move in, oven was clean and cleaning fee was not charged.

Dirty oven range when at move in, oven was not clean OR cleaning fee was charged.

Water damage from unreported leak under bathroom sink.

Hidden water damaged area caused by exterior drainage issue.

Repair of deep scratches from dragging furniture on hardwood floor.

Refinishing floor that was last refinished 10 years ago.

Repair/replace wine-stained area in 2-year-old carpet with a 7-year life span.

Repair/replace wine-stained area in 8-year-old carpet with a 7-year life span.

Lost remote control for the garage that can be reconfigured for the next tenant.

Lost key that will be replaced anyway when new tenant moves in.

An extra coat of primer is required to cover walls where tenant painted a few rooms different dark colors during 9-year tenancy.

Standard single coat of white paint covers walls where tenant painted a few rooms different pale shades during 9-year tenancy.

Damage caused by a pet, service or emotional support animal belong to a tenant or their guest.

Damage caused by pests in a mutli-family home or a single-family home where pests gained entry due to insufficient barriers in the structure.

 

Refer to manufacturer or vendor life-span estimates and only charge for lost use when replacement is required. For example, if a 5-year old refrigerator with a 10-year lifespan must be replaced due to tenant damage like a broken door, charge the tenant 50% of the cost. The same example would apply with hardwood floor refinishing where the vendor guaranteed the finish for 10 years of normal use. If tenant damage devalues your property but you choose not make the repair at move out, it is inadvisable to charge the tenant for devaluation or what a repair might cost.

Rule #6 Complete the Work Within the 21-Day Window

Make every effort to complete all repairs and cleaning that will be charged to the tenant within the 21-day period. Only after failing to remedy damages within the 21 days while making every conceivable effort, you may mail a preliminary deposit refund statement showing all charges to date, along with a letter explaining the remaining damages which have not been completed, and an estimated date for their completion. Issue the final deposit refund statement based on final charges as soon as possible.

Rule #7 Charge Outstanding Rent or Utilities Only After Offering Payment Plan

Under current COVID emergency orders, you may not charge outstanding rent against the deposit unless you offered a reasonable payment plan that the tenant did not accept within 14 days of the offer. Rent is defined as all recuring charges, including utilities, and any monthly fees for parking, storage, pets, etc. The law is unclear if this requirement applies to an outstanding utility bill that will not arrive until after move-out.

Rule #8 Thoroughly Document All Charges

Keep all communications and receipts related to work completed. The law requires you to provide a full and specific statement of all charges to the tenant. It is best practice to also include copies of receipts so that tenants are less likely to dispute the charges. If you are charging for work you did yourself, use the hourly rate you listed in your lease under section 3.E. of the RHAWA lease form and include a detailed log of your time. Assemble the completed Deposit Refund Statement (found at rhawa.org/rental-forms-leases-notices under the Tenant Notices section), all documentation, and refund payment, then make a copy of everything for your files before mailing to the tenant.

Rule #9 Mail Statement and Refund to Tenant at Last Known Address by the Due Date

The law requires that you mail the statement, documentation and any refund to the tenant’s last know address via USPS First Class Mail within 21 days of move out. If you do not mail the statement on time, you cannot legally keep any of the deposit, and a judge may award the tenant double damages requiring you to return the full deposit and pay the tenant additional funds equal to the full deposit amount.

  • If you have sent the refund digitally or using another method with tenant’s agreement, include a statement to that effect.
  • If you choose to send an additional copy using another method such as registered mail or a delivery service such as FedEx, you still must send a copy via USPS First Class Mail to fulfill your duty under the law.
  • If you have multiple unrelated tenants on the same lease, the best practice is to provide one Deposit Refund Statement and check payable to all persons who signed the lease and mailed to a designated address.
  • If you have not established a designated forwarding address and cannot get this information from the tenant prior to the due date, list all tenant names and mail to the rental property address using regular USPS First Class Mail. If they have completed mail forwarding instructions for the post office, it will be forwarded to them. If not, at least you have documentation that you did everything in your power to deliver the statement on time and have fulfilled your duty under the law.

In all cases, document that you mailed the statement and any refund by taking pictures and/or by asking the post office for a certificate of mailing. If the deposit does not cover all the charges, list amount owed on the Deposit Refund Statement. If they do not pay, you may send follow up letters and then handle through Small Claims Court or collections as needed.

Rule #10: Respond to Disputes Fairly and Thoughtfully

If a tenant disputes any charges, address their concern carefully. Make sure to investigate anything they call into question, such as a claim that they reported a leak or that something broke because it was old and worn out, not due to misuse by them. Make any adjustments to the statement and send any additional refund as soon as possible.

Deposit return issues are the most common landlord-tenant dispute and the most frequent issue we hear about in the Support Center. Keep in mind that it is your responsibility to maintain your property under normal use by a tenant. That means you will need to replace major appliances, carpet, paint, etc. on a regular basis at your own expense. Also remember that a deposit by definition is always fully refundable and that most tenants rely upon the return of the deposit in order to secure their next residence. If they have obviously made good effort to return the home in good, clean condition, do not charge them unnecessarily. A dispute is likely to end in the tenant’s favor and will only cause additional strain you your valuable time and resources.