In any type of business, a party wants to know what their greatest risks are and what are the most common types of problems they will potentially face.  In renting property, loss of revenue, damage to the property and personal injury may be the most expensive problems, but lawsuits over security deposits are the most common type of problem I see.  While many landlords are aware that they have to account for a security deposit within 14 days of a tenant moving out, they don’t understand any of the legal details and therefore make mistakes completing their accounting.  Since a tenant may sue and get treble damages for any amount “wrongfully withheld” it’s important that landlord’s act properly.

Before even worrying about returning the deposit, a landlord must know what deposits they can even take when signing a lease.  A.R.S. § 33-1321 says that a landlord cannot take any “security” over 1.5 times the monthly rent.  However, A.R.S. § 33-1310 says “security” does not include a reasonable charge for redecorating or cleaning.  Therefore, a non-refundable cleaning fee would not be included in this amount.  Remember, any fee that is collected, which is not identified in writing as non-refundable, is refundable.

A.R.S. § 33-1321(D) provides that after demand by the tenant, after termination of the tenancy and delivery of possession, the landlord has 14 BUSINESS days to provide an accounting of the deposit and return to the tenant any funds they are entitled.  While this appears to create three requirements that must be met by the tenant, we always suggest sending the accounting within 14 business days of obtaining possession.  The accounting MUST be mailed regular mail to the tenant’s last known address (and it’s a good idea to certify mail it as well).  Be sure to keep a copy of what is being mail.

Before accounting for anything, the landlord should take pictures of all the damages.  While receipts show a judge what it cost to repair a property, a picture allows the judge to understand why the repairs were necessary at all.  It is because of this that a landlord should always have pictures of a property before and after a tenant lived in the property.  The judge needs to see the before pictures to understand the damage done by the tenant.

While a landlord must send out an accounting in the first 14 business days, there is an on-going duty to amend the accounting.  Therefore, after lawfully obtaining possession, a landlord should begin getting estimates for the cost of repairs and begin the work.  If the work is not completed within the 14 business days, a landlord must still send a preliminary accounting, with the estimates, and specify that the accounting will be updated once the work is completed and all invoices are collected.

If a tenant leaves in the middle of a lease, they are liable through the remainder of the lease term, but a landlord must mitigate their damages.  This means that a landlord has a legal obligation to market and rent the property.  If they are unable to rent the property despite good faith effort, then the tenant remains liable.  If they do re-rent the property, the tenant is only liable for the time the property was vacant.  As with damage estimates (see above), a landlord should send an initial estimated accounting within the 14 days even if she doesn’t know when the property will be re-rented.  Once re-rented, and the final amount owed is calculated, a final accounting should be sent.

If a landlord does end up in a lawsuit over a security deposit, the most important things she will need are: (1) the accounting; (2) receipts supporting the amounts owed; and (3) pictures before and after.