A Comprehensive Guide to the Security Deposit Return Letter

Learn how to write a professional and effective security deposit return letter with this guide.

By
Nichole Stohler
|
Last Updated
December 12, 2023
A Comprehensive Guide to the Security Deposit Return Letter

Security deposit returns move along smoothly when tenants leave the unit undamaged, but what happens when you need to make deductions due to tenant damage? How do you communicate this without instigating disputes?

We've got what you need to answer these questions right here. In this guide, we'll walk through creating a comprehensive and compliant security deposit return letter, even when deductions are warranted. You'll gain knowledge that enables straightforward, fair correspondence with tenants while maintaining positive relations and protecting your rights as a landlord.

What is a security deposit return letter?

A security deposit return letter is a formal communication issued by a landlord or property management company to tenants at the conclusion of a lease agreement. This document plays an important role in returning the tenant's security deposit — the sum of money held by the landlord throughout the tenancy to cover potential unpaid rent or damages.

The letter transparently records the disposition of the security deposit, outlines any deductions made, and clarifies the final amount that the landlord will return to the tenant. It aims to maintain open communication, prevent disputes, assure legal compliance, and bring financial closure to the leasing arrangement.

Landlords use this correspondence to communicate the property's financial statement at the conclusion of the tenancy.

Why is the security deposit return letter important?

The security deposit return letter holds great importance for several reasons, each contributing to a straightforward process for both landlords and tenants. Key reasons include:

Legal documentation

The security deposit return letter serves as a tangible record of the mutually agreed upon terms and conditions related to the return of the security deposit.

In case of any disputes or disagreements in the future, the letter serves as evidence of the refund process that both parties consented to.

Clarity and transparency

The return letter provides tenants a detailed explanation of all deductions made from their entire security deposit. It offers a breakdown of charges or damages that led to the reduction in the refundable amount.

This level of transparency and clear communication helps avoid misunderstandings or conflicts, thereby maintaining positive landlord-tenant relationships.

Compliance

The security deposit return letter helps landlords confirm compliance with legislation governing security deposits. With this formal documentation, landlords can demonstrate adherence to legal stipulations dictating the handling and return process.

Accountability

Issuing a security deposit refund letter establishes a sense of accountability for landlords. Landlords demonstrate their commitment to responsibly handling the tenant's funds by providing a formal document. It fosters trust between both the landlord and tenant and assures transparency throughout the process.

Record keeping

The security deposit return letter helps landlords maintain accurate record keeping. It confirms accurate documentation of all necessary information related to the return of the security deposit.

This letter is an organized record that can be easily referenced and accessed in the future, simplifying the process for landlords and tenants.

Expenses to deduct from the security deposit

When returning a security deposit, landlords may deduct certain expenses that are permitted by law and outlined in the lease agreement.

Here are the types of permitted and prohibited deductions:

Permitted deductions

  • Unpaid rent: Lease agreements permit landlords to deduct any outstanding rent or fees owed by the tenant.
  • Damage to the property: Landlords may deduct the costs of repairing any tenant-caused damages beyond normal wear and tear, including significant damage to walls, flooring, appliances, and fixtures.
  • Cleaning expenses: If the tenant leaves the rental unit in poor condition, landlords may deduct cleaning costs from the security deposit. Issues that warrant deducting cleaning costs include having to remove trash, deep clean carpets, sanitize bathrooms, or otherwise restoring the property to its original cleanliness.
  • Unpaid utilities: Property management can deduct any unpaid utility bills from the security deposit if the tenant was responsible for paying for those utilities during the lease term. Outstanding electricity, gas, water, or other utility charges incurred during the tenancy may all be deducted.
  • Lease agreement breaches: In cases where the tenant breaches the terms of the lease agreement, such as subletting without permission or having unauthorized pets, landlords may deduct expenses directly related to resolving these lease violations, such as legal fees or additional repair and cleaning bills.

Prohibited deductions

  • Normal wear and tear: Landlords cannot deduct money from the security deposit for normal wear and tear that occurs naturally over time. Minor wall scuffs, worn-out carpeting, or fading paint due to regular use all constitute expected wear and tear.
  • Pre-existing damages: Property management and landlords cannot deduct the cost of repairing damages that were present in the rental unit before the tenant moved in. It is the landlord's responsibility to make sure that the property is in proper condition before the tenancy begins.
  • Interest: Unless required by law, landlords cannot deduct interest from the deposit.
  • Late fees: Property owners cannot deduct late rent payments or other charges unless explicitly stated in the lease agreement.
  • Routine maintenance: Routine maintenance tasks and repairs that are part of the landlord's responsibility, such as replacing light bulbs or fixing leaky faucets, should not be deducted from the security deposit.

How to create a security deposit return letter

Getting a security deposit return letter just right means including the right details and using the correct formatting.

Here, we've put together a simple guide on how property managers can quickly write a letter:

  1. Start with a professional salutation: Address the recipient by their name or title, such as "Dear [Tenant's Name]."
  2. Include an introductory paragraph: Begin the letter by stating that you are writing to return their security deposit.
  3. Mention the property address: Include the address of the rental property.
  4. Specify the amount you are returning: Clearly state the exact security deposit amount you're returning.
  5. Provide an itemized list of deductions: If you deduct charges from the security deposit, be sure to itemize them. Include a brief explanation for each deduction.
  6. Clarify the method of repayment: State how you will return the security deposit, whether by check, direct deposit, or another method. If applicable, provide any instructions or forms the tenant must complete for the return.
  7. Express gratitude and good wishes: Thank the tenant for their tenancy and express well wishes for their future endeavors.
  8. Include contact information: Provide your contact information, such as an email address or a phone number, so the tenant can reach out if they have any questions or concerns.
  9. End the letter with a closing: Use a professional closing, such as "Best regards" or "Sincerely," followed by your name and position.

Sending security deposit return letters

Sending security deposit return letters promotes transparency and professionalism. The best method for sending security deposit refund letters depends on various factors, including tenant preferences, convenience, and legal compliance.

Below are some ways you can send security deposit refund letters and the best practices for each method.

Physical mail

  1. Print out a hard copy of the refund letter on professional letterhead or use a formal template.
  2. Fold the letter neatly, place it in an envelope, and seal it.
  3. Affix proper postage and mail it to the tenant's current mailing address.
  4. Retain a copy of the letter and proof of mailing, such as a certified mail receipt, for your records.

Email

  1. Compose a well-written email that includes all the necessary details of the security deposit refund.
  2. Use a professional email address and subject line.
  3. Attach the refund letter as a PDF or Word document for easy viewing and printing by the tenant.
  4. Send the email to the tenant's verified email address.
  5. Request a read receipt or delivery confirmation to make sure that the tenant receives the email.

Electronic signature platforms

  1. Make use of electronic signature platforms like Adobe Sign, DocuSign, or HelloSign to streamline the process.
  2. Upload the refund letter to the platform and add the necessary fields for signatures and dates.
  3. Input the tenant's email address and send the document for signing.
  4. Monitor the document's progress and receive notifications when the tenant signs.
  5. Once signed, download a copy of the signed letter for your records and securely store it.

Online tenant portals

  1. If your property has an online portal, send the refund letter using this platform.
  2. Upload the letter as a secure document within the tenant portal.
  3. Send a notification or message to the tenant informing them of the availability of the refund letter.
  4. Verify that the tenant can easily access and download the letter from their portal.

Return of security deposit letter

Wrapping up lease agreements on good terms hinges on properly detailing the return of a tenant's security deposit. The security deposit return letter is a key communication tool that provides all the information that everyone involved requires.

By following the steps provided in this guide, landlords can feel confident about handling security deposit returns efficiently, assuring a fair and well-documented resolution and wrapping up the lease on a positive and professional note.

Security deposit return letter FAQs

When should a security deposit return letter be sent?

You should send a security deposit return letter within the timeframe specified by your state's security deposit laws in conjunction with the timeline outlined in your lease agreement. Typically, security deposits for rental properties should be returned within around 30 days after the tenant has vacated the property.

What if the tenant disagrees with the deductions stated in the security deposit return letter?

If the tenant disagrees with the deductions made, it's important to address their concerns promptly. Open and respectful communication can help clarify any misunderstandings and help you both work toward a resolution.

How do I document the mailing of the security deposit return letter?

It's important to retain copies of the sent letter, attached documents, and relevant receipts, such as postage or certified mail receipts for your records. These provide proof that the tenant received the security deposit correspondence.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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