Can I Hold the Tenant’s Security Deposit Instead of My Management Company?

Mike Nelson
Mike Nelson
Dinostock / 2010 Photoxpress.com
This is a question we hear quite a bit.  Excalibur’s policy is to always hold the security deposit if we are managing the property.  Georgia’s laws regarding residential landlord/tenant issues, commonly referred to as “The Landlord/Tenant Act” can be found in O.C.G.A.  44-7.  44-7-31 through 44-7-36 all deal with how security deposits must be handled and many landlords are not familiar with their legal obligations.   Landlord Tenant law defines security deposit as:

“money or any other form of security given after July 1, 1976, by a tenant to a landlord which shall be held by the landlord on behalf of a tenant by virtue of a residential rental agreement and shall include, but not be limited to, damage deposits, advance rent deposits, and pet deposits. The term “security deposit” does not include earnest money or pet fees which are not to be returned to the tenant under the terms of the residential rental agreement.”

We cannot collect the security deposit until a move in inspection is completed and signed by both parties.  Under 44-7-31, Excalibur is required to hold the tenant’s security deposit in an escrow account registered with the Georgia Real Estate Commission set up for that particular purpose.  We must also inform the tenant of which bank is holding their deposit.

Once the tenant terminates their occupancy, we have 3 business days to perform the move out inspection which must be signed by the management company.  The tenant has 5 days from their termination of occupancy to inspect the accuracy of the move out inspection.  If the tenant disputes any charges they must do so in a signed written statement.  The tenant then has the right to pursue a lawsuit for wrongfully withholding the deposit for damages to the property.  If the tenant does not submit a written statement disputing the charges then they do not have a right to the security deposit that was withheld for damages.

There is a short window in which we must return the security deposit or the portion that wasn’t withheld for damages to the tenant. The refundable portion of the security deposit and damage summary paperwork must be delivered by first class mail within 1 month of the termination of the lease or surrender and acceptance of the property.  The security deposit can’t be retained for “normal wear and tear” but can be retained for unpaid rent, late fees, damages to the premises, nonpayment of utilities, repair work or cleaning charges, and abandonment of the property. The penalty for not returning the security deposit due the tenant within the 1 month time period is steep.

“Any landlord who fails to return any part of a security deposit which is required to be returned to a tenant pursuant to this article shall be liable to the tenant in the amount of three times the sum improperly withheld plus reasonable attorney’s fees; provided, however, that the landlord shall be liable only for the sum erroneously withheld if the landlord shows by the preponderance of the evidence that the withholding was not intentional and resulted from a bona fide error which occurred in spite of the existence of procedures reasonably designed to avoid such errors.”

If any of the above procedures are not followed the landlord forfeits any rights to the security deposit.  Thus the importance of using a responsible management company that is current and clear on these laws regarding the handling of security deposits.

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