DEFINITION OF SECURITY DEPOSIT
The term “security deposit” refers to money or other valuable items given by the tenant to the landlord in conjunction with renting property and can include damage deposits, advance rent deposits, and some pet deposits. If the landlord charges the tenant a nonrefundable fee such as a cleaning fee or a pet fee, the nonrefundable fee is not part of the security deposit. (O.C.G.A. § 44‑7‑30). The security deposit protects the landlord against losses from default in rent payment and from losses due to the tenant’s negligent behavior in relation to the landlord’s property. Security deposits are not a source of funds for the repair of damages to the property that result from normal wear and tear.
Typically, the security deposit is a fund established by the tenant to guarantee faithful performance of the tenant’s obligations incurred under the lease with regard to the property and to mitigate any losses by the landlord. This interpretation entitles the tenant to a return of the security deposit at the end of the lease if the tenant meets his or her obligations. If no damages occur due to negligence by the tenant, the tenant receives the entire deposit. Disagreement can arise, however, about what is damage resulting from negligent behavior and what is normal wear and tear. To avoid confusion, a lease can contain a clause that defines what is normal wear and tear and what is damage. For example, wear and fraying of carpeting may be a consequence of normal wear and tear, whereas rips and discoloration from spills may be the result of the tenant’s negligent behavior. In addition, careful attention to the “move-in, move-out inspection form” discussed in Section 33.04, can head off potential disputes over responsibility for damages to the property.
ESCROW ACCOUNTS FOR SECURITY DEPOSITS
Under Georgia law if a person individually or collectively owns with his or her spouse and/or minor children more than ten residential rental units, the Georgia law has stringent requirements for collecting and handling security deposits. (O.C.G.A. § 44‑7‑36) . When the landlord owns more than ten units, the landlord must place all security deposits in an escrow account to hold them in trust for the tenants during the tenancy. (O.C.G.A. § 44‑7‑31). These requirements also apply whenever third persons (agents) manage rental property for a fee, whether or not the owner owns more than ten units. (O.C.G.A. § 44‑7‑31).
For owners who do not hold a real estate license, there is an alternative to placing security deposits in an escrow account. The landlord may post a surety bond in the total amount of all security deposits held by the landlord on behalf of tenants, or $50,000, whichever is less, with the clerk of the Superior Court in the county where the property is located. (O.C.G.A. § 44‑7‑32). This alternative is not available to real estate licensees whether they lease their own property or managing property for others, nor does it matter whether the property involved is residential or commercial. Licensees must deposit in trust accounts all security deposits as well as down payments, earnest money deposits, or other trust funds that they receive. (O.C.G.A. § 43‑40‑20).
INSPECTION OF PREMISES
Before accepting a security deposit on residential property, the landlord must give the tenant a list of all existing damages to the premises and allow the tenant to inspect the premises to ensure the accuracy of the list. In practice many brokers give tenants a move-in, move-out inspection form for the tenant to fill out. Once the tenant and landlord agree upon the condition of the items listed on the form, both must sign it; and it serves as evidence of all known defects to the property at the beginning of the contractual relationship. If the tenant refuses to sign the list, the tenant must state specifically in writing the items on the list to which he or she dissents and sign such statement of dissent. Within three days after the date of the termination of occupancy, the landlord must (a) utilize the original inspection list to determine if any additional damage has occurred during the tenancy; (b) determine the estimated dollar value of such damage to charge against the tenant’s security deposit; and (c) notify the tenant in writing. The tenant has the right to inspect the property within five business days after the termination of occupancy in order to ascertain the accuracy of the list of damages. Both parties sign a statement indicating their agreement on the final damage assessment. If they cannot come to an agreement over the damages, the tenant must specifically state in writing the items on the landlord’s list to which he or she dissents and must sign that statement of dissent. If the tenant vacates the property without notifying the landlord, the landlord’s final inspection may come within three days after the landlord discovers the termination of the occupancy.
When the parties cannot come to an agreement over the damages, then the tenant may institute a legal action in any court of competent jurisdiction against the landlord for the amount of the security deposit that the tenant believes was wrongfully withheld. (O.C.G.A. § 44‑7‑33). If the tenant prevails, the landlord can be liable for up to three times the improperly held deposit plus attorney’s fees.
RETURN OF RESIDENTIAL SECURITY DEPOSITS
The landlord must return the security deposit within thirty days after the termination of the rental agreement or the surrender and acceptance of the premises, whichever occurs later. A landlord may not withhold a security deposit for ordinary wear and tear of the premises. If the landlord retains any portion of the security deposit, the landlord must provide the tenant with a written statement listing the exact reasons for doing so. If the landlord retains the deposit to pay for repairs of damages to the premises, the landlord must list the damages as described in section 32.04 above. Upon delivering the written statement to the tenant, the landlord must accompany it with a payment of the difference between any sum deposited and the amount retained. (O.C.G.A. § 44‑7‑34). The landlord may mail the statement and any payment required to the last known address of the tenant by first class mail. If the letter containing the payment is returned to the landlord undelivered and the landlord is unable to locate the tenant after reasonable effort, the payment will become the property of the landlord ninety days after mailing. (O.C.G.A. § 44‑7‑34).
In addition to compensation for damages, the landlord may also lawfully retain amounts from the security deposit for mitigating damages caused by nonpayment of rent or of fees for late payment, unpaid utility charges, cleaning charges, or other damages caused by a tenant’s breach of contract. The landlord must give notice to the tenant and use the funds specifically for those purposes. If the landlord fails to return the security deposit or fails to comply with the special legal requirements, the landlord forfeits all rights to retain any of the funds in escrow, forfeits the right to sue the tenant for damages to the premises, and can become liable to the tenant for three times the amount withheld plus reasonable attorney’s fees. (O.C.G.A. § 44‑7‑35).
If the damages to the property exceed the amount of the security deposit, the property owner can sue the tenant for the additional funds to fix the damage. Unpaid rent amounts and late fees can be included in this suit.