As a landlord, you’re probably very familiar with security deposits. Before signing a new lease, students are typically required to place money down (typically one month of rent) in good faith to reserve their apartment and provide you with collateral in case things go wrong.
But that all being said, what exactly should you be including in your security deposit agreement? What information can you provide your tenants that will help eliminate issues down the road?
Here are six items that you should always include in your security deposit agreement.
First and foremost, it’s important that you include the amount that you require a student put down in their security deposit is clearly outlined for the tenants. While the deposit is typically equivalent to one month’s rent, if there are any additional fees involved, those should be outlined as well.
It also helps to include itemized information regarding the security deposit, as this way the student knows how much they owe and what those amounts are going towards (if anything).
2. Where It Will Be Held
A security deposit is meant to be returned to the tenant should they adhere to the apartment complex’s stipulations. That being said, many students aren’t aware of how this works. Will the money still be in their account the whole time? Will they be charged right away? Where will this money be kept?
It’s important to outline all of these answers for the student tenant in their security deposit agreement. If you ask for a security deposit in check form, will you be cashing the check, or holding onto it until the end of the year? Whatever method you use, be sure that your student is aware so they can adjust their finances accordingly.
3. Interest Accrual (if applicable)
For some landlords, there is the concept of interest accrual regarding security deposits. Will your tenant be accruing interest over the course of the year? Will you be charging interest over the course of the year?
While this item certainly isn’t going to apply to everyone, if there is an interest element included in your security deposit information, it’s important to include that information clearly so your tenant can plan for such interest charges/accrual. Again, the more upfront and honest you are about finances, the less likely there will be problems and/or confusion later on in the year.
4. Return Stipulations
An important note to make is that not all security deposits will be returned to the student. Most students actually plan to not get their security deposit back while some believe that they will. When it comes to security deposits, there is a lot of confusion over what warrants the deposit to not be returned.
For that reason, you should outline the return stipulations in your security deposit agreement. What would cause you to keep the deposit? What are the requirements for having the deposit returned to the student? Outline any and all possibilities and you’ll avoid any confusion or argument later on.
5. Return Dates
There is also the question of returning the security deposit and when students can expect to receive them back. If a student has passed your requirements and should have their deposit returned to them, you should let your student know what your return dates are/when you are expecting to have the deposit back to them, especially if it will not be returned immediately after the lease is up.
Some students rely on this money being returned to them, so you should let the student know upfront when they should expect to receive their deposit back.
6. Return Process
Last, but not least, there is the outlining of the return process as a whole. When returning a security deposit to a tenant, there is typically a process in place. For instance, if the student had roommates, will these be mailed out to one individual, or will they be mailed out separately to each tenant on the lease?
In addition, what method will they be receiving their deposit back (i.e. direct bank transfer or check mailed out to them personally)? Be sure to clear up any and all relevant questions related to the return process so your tenant is fully informed as to what to expect.
Again, just because you require a security deposit from your tenants does not mean they fully understand the process. As a landlord, it’s in your best interest (and theirs) to provide as much information as possible to your renters so they fully understand the entirety of the security deposit process.
These six items are great to include, but you can also include more or less information as applicable to your renter’s agreement. Just be sure not to leave out any important details! It’s far more beneficial to be up front and clear with your residents to avoid problems down the road.