The Security Deposit

So you have a new tenant, they pay a month’s deposit and you pop it in your regular current account. When they move out, you fix what they’ve broken, deduct the costs from the security deposit and pay back what’s left. Simple, right? Wrong!

The handling of security deposits is one of the most frequent sources of dispute between tenant and landlord, most often because the correct steps as set out by the Rental Housing Act were not followed.

Not all damage is physical

Traditionally, landlords have considered the security deposit to be reserved for physical damage to the property caused by the tenant during their occupation. But did you know that the Rental Housing Act allows it to be used for any damages or losses that were incurred – including unpaid rent and any outstanding fees?

How much is enough?

Although a security deposit of one month’s rent is the norm, RentMaster sometimes requires additional security deposit. This happens in the following examples where the tenant’s profiling shows additional risk:

  • The tenant does not meet affordability criteria: the monthly rental amount is more than 33% of her net salary;
  • The income is not secure: the tenant is either self-employed or earns a commission that varies from month to mont;h
  • There are minor issues with the tenant’s credit history
  • The tenant is over-exposed in terms of other retail credit commitments.

If the tenants cannot afford the deposit, often because they are required to put down the deposit on a new property while the previous deposit is still being held pending conclusion of the existing lease, they can apply for Deposit Assistance. This is offered by some financial institutions in the form of bridging loans and RentMaster can assist in applying for this where required.

Initial inspection

Before the tenant moves in the tenant and landlord or his mandated agent must inspect the property together to identify any defects or damage to the property. These need to be documented and signed by both parties. RentMaster supplies all the required documentation to facilitate this.

Don’t touch it!

Once the deposit has cleared into the landlord’s account, keys are handed over and the tenant is free to move in. The Rental Housing Act requires that the security deposit be kept in a separate interest-bearing account. Many landlords make the mistake of using funds from the security deposit during the tenant’s occupancy. This is not allowed, not even when the tenant has not paid rent or has damaged the property.

Exit inspection

Once a tenant has given notice, the landlord and the tenant must attend a site inspection together. The Act says it must occur in the last three days of occupancy. This is of course very difficult to do – the tenant has his hands full with packing and the landlord would like to inspect the property without any of the tenant’s possessions in the way. And so the site inspection often does not take place, which, according to the Act is deemed to be

“acknowledgement by the landlord that the dwelling is in a good and proper state of repair and the landlord will have no further claim against the tenant who must be refunded… the full deposit plus interest”.

The Act does however provide for the event where the owner attempts to hold the inspection but the tenant fails to attend.

“should the tenant fail to respond to the landlord’s request for an inspection… the landlord must on expiration of the lease. inspect the dwelling within seven days from such expiration in order to assess any damages or loss which occurred during the tenancy”

At RentMaster we make sure that both the initial entry inspection and the exit inspection do take place. Any damage to the property that can be shown to have been caused by the tenant that was not recorded during the initial statutory entry inspection, can be repaired and the costs deducted from the deposit. This does not include fair wear and tear or structural defects. (We will dedicate a future Nuts&Bolts article to the topic of maintenance and damages.)

When must the deposit be repaid?

If there were no damages to be repaired and there is no unpaid rent or outstanding fees, the deposit must be paid back within 7 days of the end of the lease. If there are damages, the property owner has fourteen days to repay. RentMaster will first pay the owner the costs of repairing the allowable repairs, then we will settle any unpaid rent, and finally we will settle any outstanding fees which can include municipal services, debt collection costs and amounts due to the agent as per the lease agreement.

What about the interest?

The tenant can expect to receive the same amount of interest that a 30-day savings account at the bank would accrue.

Is it legal for the tenant to use the deposit as the last month’s rent?

Absolutely not. The Act clearly specifies what the deposit is to be used for. Any tenant who does so risks being black-listed with the credit bureaux.

Is there an easier way?

Sure! Speak to RentMaster and we’ll guide you every step of the way.