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A landlord in Alaska is facing a major legal battle over its routine handling of tenants’ security deposits. The tenants are asking that the case be prosecuted as a class-action lawsuit so more tenants can join in.

This case serves as a good example of why landlords and property managers need to know the local laws regarding security deposits, and need to carefully review any new policies they may implement regarding trust funds.

At issue in this case is whether a landlord can streamline the accounting process by charging flat rates for common items, charging for those items in every case, or rounding up on hourly charges.

In the Alaska case, the landlord deducted exactly $35 for oven drip pans although that is allegedly not the actual cost, nor is replacement necessary in each case. Tenants were also billed for repairs at an hourly rate higher than what was actually paid, rounded up to the nearest hour.

State laws govern security deposit deductions. While some state statutes try to clarify landlords’ duties with regard to security deposit deductions, even these statutes leave unanswered questions.

Generally, though, deductions for damage can only be taken for the actual, out-of-pocket costs to the landlords. Remember, normal where and tear can never be deducted.

Normal wear and tear are those items that are inevitable with normal use and aging” some carpet wear, some scuffing or aging of paint. Normal wear and tear will occur despite proper maintenance and cleaning. Landlords cannot deduct for these items, even if a tenant agreed to pay for them in the lease.

Allowable items are those that would not have occurred with time or normal use. That can include exposure to the elements, for example, damage to the paint or carpet from leaving windows or doors open, or problems caused by excessive dirt build up. The costs of structural damage to walls, windows, and doors, or from pets, smoke, or bugs, if not caused by defects in the property, are probably deductible items.

When you do charge a tenants security deposit for damages, you are likely limited to the actual loss, not the replacement cost, or in this case, a rough estimate of the cost.

Each deduction must be justified and backed-up with documentation – pictures, receipts and proof of payment. There have been a number of court cases where landlords have lost because they didn’t provide proper documentation. Some states allow additional damages in those cases, and may stick the landlord with attorneys fees.

See our feature, Are Late Fees Legal?

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