Conflicts and disputes can quickly and easily arise over security deposits. When you rent out a Grand Rapids property, you collect a security deposit from your tenant before they move in. At the end of the lease term, most tenants expect to get that deposit back in full. But, if there is damage left behind, property owners will deduct those repair costs from the deposit. This does not always sit well with your former renters.
When you do make a security deposit deduction, you want to be sure it’s justified and well-documented. If your tenants do decide to dispute what you’ve deducted and they win, you’ll have to return the entire deposit and face potential extra fees and punitive costs. If you don’t send the deposit back within the required timeframe, you must pay the tenant twice the amount of that deposit.
Let’s take a look at what can be deducted from your tenant’s security deposit. We’ll also talk about some of the other legal details you need to know when it comes to those deposits.
Michigan Security Deposit Law Overview
We’re focusing on the deductions you can make at the end of the lease term, when you’re returning the deposit. But first, let’s talk about how much you can collect. Michigan limits the amount of your security deposit to the equivalent of one and a half month’s rent. So, if you’re renting out a home for $1,600 per month, the maximum you can collect is $2,400.
Once you’ve collected the security deposit, you must place it in a regulated financial institution or deposit a cash or surety bond with the secretary of state.
Once the lease term has come to an end, you have 30 days from the date that your tenant moved out to return all or part of the deposit.
When you make deductions to the security deposit, you are required to provide your tenant with a notice of damages. That notice must include an itemized list of the deductions and the actual or estimated costs of the repairs for those damages. The itemized list shall include a check or money order for the remaining funds of the security deposit.
Security Deposit Deductions in Grand Rapids
Unless you have chosen to post a surety bond in lieu of the security deposit, you are not permitted to use the tenant’s security deposit until the lease has ended or been terminated. As you’re inspecting the condition of your Grand Rapids rental property, you can make deductions from that deposit for the following reasons:
Unpaid rent and utility bills
If your tenant did not pay the last month’s rent or they had a balance on their account from incomplete or late rental payments in the past, you can use the deposit to cover those charges and bring the tenant’s account to current. You can also use the security deposit to catch up with any overdue utility bills that the tenant has acquired. You may not be able to turn those utilities into your own name, for example, if there’s a balance on the account from your former tenant.
Rent owed if your tenant breaks their lease
Security deposit law in Michigan also allows you to withhold any money from the deposit to cover the rent owed on a lease that is broken. If your tenants move out before the end of their lease term, you can use the deposit to cover the rent that is owed until you’re able to find a new tenant.
Damages that extend beyond normal wear and tear
This is where most of the confusion sets in for rental property owners. You’re responsible for paying to repair any wear and tear issues. Rental homes can be expected to endure normal deterioration. Any home will show signs of wear when people live there. Small nail holes in the walls are not really damage; they’re what naturally happens if a tenant hangs a picture. Those scuff marks on the floor or against the wall are a result of furniture resting there. These things cannot be deducted from the security deposit. You’re expected to cover them.
Damage, however, is different.
You can deduct the cost of tenant damage from the security deposit. Just make sure the damage is well-documented.
Damage is the deterioration or destruction of property that is the fault of your tenant. The damage may have resulted from an unintentional accident or negligence. It might have been a deliberate act of abuse. Either way, the damage resulted from the tenant not complying with their obligations of caring for your rental property.
Inventory Checklists Help Document Damage
An inventory checklist when the tenant moves into the property will help you determine damage and normal wear and tear. This checklist is also legally required. You must provide it to the tenant.
When your tenant moves in, provide them with two blank copies of the inventory checklist you created while inspecting the property and documenting its condition prior to move-in. At the end of tenancy, you will complete the termination inventory checklist, and that’s where you will document any new damage that was noticed during your move-out inspection.
Your tenant will have seven days to make any notes on the move-in inventory checklist before returning it to you. When you’re creating your itemized list of what you’re withholding from the security deposit and why, you can use the termination checklist to support your claims. Include that in what you mail to the tenant as well as any invoices or receipts that demonstrate what you’ve spent.
Going to court because a tenant is disputing what you’ve withheld from their security deposit can be expensive and time-consuming. You want to avoid it whenever possible.
With a good tenant relationship, a thorough move-in and move-out inspection, and the right documentation, returning your tenant’s security deposit should not be difficult.
If you’d like some help from professional Grand Rapids property managers, we’re here for you. Contact our team at Short South Realty Group.