SECURITY DEPOSITS IN THE AGE OF AI: BACK TO THE BASICS

SECURITY DEPOSITS IN THE AGE OF AI: BACK TO THE BASICS

With AI being promoted everywhere, we expect to see more lawsuits by residents against landlords. A tenant who once would have just grumbled about a deduction can now have a chatbot draft a complaint in minutes. Security deposit lawsuits are already the #1 lawsuit filed by residents, so we thought it would be a good time to review the basics, to help in the event you end up in a lawsuit.

Start at move-in. In Arizona, the total security you can collect, regardless of what it is called, is one and one-half months' rent. All deposits are refundable unless the lease specifically states otherwise. Don't let a tenant apply the deposit to the last month's rent, or you'll have nothing left to cover the damage.

When a tenant moves out, a clock starts, and it runs out sooner than many landlords expect. We treat day zero as the day you get possession back, either when the keys come back, when a writ is executed or when the abandonment is complete. From then, you have 14 days, not counting weekends or legal holidays, to send an itemized accounting by first-class mail to the tenant's last known address. Ask for a forwarding address at move-out. If you don't get one, use the last address you have on file, which is usually the rental property. Put the deadline on your calendar the day you regain possession and count carefully around holidays. Get a certificate of mailing from the post office so you can prove when it went out or keep a copy of the envelope and check.

Itemized means every charge gets its own line. Don't lump charges together under "cleaning and repairs." Make sure you have invoices and records to support each charge. Keep your move-in and move-out photos with the signed move-in inspection sheet. And remember that you can't charge for normal wear and tear. The tenant also has the right to be present at the move-out inspection. If they ask to attend, schedule it and let them come.

If you can't get all of the work done within that 14-business day period, send out an estimate on time to show that you complied. Then, once all the work is done and you have the actual invoices, send a final accounting. You never want to be late in sending out the accounting! And if the charges are more than the deposit, still send the accounting showing the balance owed. It's the foundation for any collection effort later.

If several tenants share the lease, write one check payable to all of them. Unless your lease has a provision that identifies which person gets the deposit, make it payable to all of them.

This matters because the tenant can recover twice the amount wrongfully withheld if you miss the deadline or can't support your charges. Fourteen days go by quickly, so plan for it. If you have a question about a particular accounting, call us before the deadline, not after.