Who keeps the security deposit at the end of a lease, the landlord or the tenant?
One of the most common disputes between landlord and tenant occurs at the end of a lease—namely, the return of the security deposit. Whether you are a tenant or a landlord, the right to the security deposit, or any portion thereof, is determined by acts and omissions of both parties at the beginning and end of the lease. For that reason, it’s important to understand your rights and obligations whether you are seeking return of a security deposit, or are attempting to keep one.
What is a Security Deposit?
This may seem obvious. However, like most terms we tend to take as obvious, there is a legal definition for it established by statute. Specifically, O.C.G.A. § 44-7-30(3) defines a security deposit as:
[M]oney or any other form of security…by a tenant to a landlord which shall be held by the landlord on behalf of a tenant by virtue of a residential rental agreement and shall include, but not be limited to, damage deposits, advance rent deposits, and pet deposits. Such term shall not include nonrefundable fees, or money or other consideration which are not to be returned to the tenant under the terms of the residential rental agreement or which were to be applied toward the payment of rent or reimbursement of services or utilities provided to the tenant.
The importance of this definition is what it does not include. As the definition states, nonrefundable fees or other consideration are not considered security deposits and are therefore kept by the landlord in most circumstances. It is critically important for both a landlord and a tenant to make clear in the lease what amounts paid are intended to be refundable and which aren’t. If not, disputes can arise as to what is the actual intent and purpose of the payment. For example, a lease that requires payment of the first and last month’s rent upfront, but does not specify further, can create a dispute where the tenant believes a payment to be refundable while the landlord does not.
Duty of Inspection & Strict Time Requirements
At the beginning of a lease, the landlord must present the tenant with a comprehensive list of any existing damages. The tenant will then have the right to inspect the premises and either agree or dispute any of the listed items. This initial inspection is critical for both parties when it comes time for the return of the security deposit, as it creates a record of damages that protects both parties.
This inspection comes full circle at the end of the lease. O.C.G.A. § 44-7-33(b)(1) requires that a landlord inspect a premises within three business days. The tenant likewise has the right to inspect and dispute the list within five business days. These time limits are strictly construed, meaning that failure to abide by them can waive a party’s right to the security deposit. Yikes! It is important to note that ordinary wear and tear cannot be included as damage on the inspections. The law realizes and expects that property will suffer signs of use that cannot be deducted from the security deposit absent negligence, carelessness, accident, or abuse by the tenant.
Return of the Security Deposit
After the final inspection, the landlord has 30 days to return the security deposit to the tenant. If the landlord chooses to withhold money because of damage listed on the final inspection report, then the landlord must provide a written statement with the exact reason for the withholding.
These requirements are again strictly construed. The landlord cannot wait longer than 30 days to return the security deposit and it cannot withhold any more than the actual amount necessary to compensate damage that it has specifically identified.
Consequences of Not Returning the Security Deposit
Failure to abide by any of the foregoing requirements, including the initial inspection, final inspection, and their accompanying time requirements, can cause a landlord to forfeit the security deposit completely (even if there is actual damage to the property).
Not only does failing to abide by the above requirements forfeit the right to the security deposit, it also waives a landlord’s ability to bring a lawsuit against a tenant for damage to the property, which ordinarily it would be able to do if the security deposit was inadequate to compensate for the damage.
If a landlord fails to return any part of a security deposit required to be returned, then the landlord is liable for damages three times the amount improperly withheld and the tenant’s attorney’s fees. This number can be six to ten times the amount of the security deposit, depending on extent and nature of the lease and resulting litigation. These consequences are why it’s incredibly important to strictly follow the duties and time limits imposed by statute.
Important Exception
With all of the above in mind, there is one crucial exception that can render all of it inapplicable. O.C.G.A. § 44-7-36 provides that the entirety of the above does not apply to rental units owned by a natural person who collectively owns ten or fewer rental units unless the unit is managed by a third person for a fee.
What does that mean? For starters, the reference to “natural persons” means that corporations/companies that own a rental unit cannot take advantage of this exception even if the company only owns one property. This is because while corporations/companies are considered people under the law, they are not “natural persons.”
Second, even if the landlord is a real person who only owns one property, if they hire a management company to handle the lease for them, even for the limited purpose of collecting rent, they cannot take advantage of the exception. In our experience, this is most rental properties, as individual landlords rarely take an active role in the management of the property. However, this is why it’s important for a tenant to actively check the lease to see exactly who the stated landlord is. This also provides a strong consideration to a landlord to consider before making a decision whether to utilize a third party to manage the property.
Just Ask an Attorney
For most people, a lease agreement is one of the first written contracts he or she will enter into. Usually, tenants lack a complete understanding of their rights and obligations when doing so. Likewise, landlords may not truly realize the strict depth of their duties and the consequences that failing to abide by them can result in. When it comes to a security deposit, this can result in hundreds or thousands of dollars lost to either party.
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