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What to Do When a Tenant Sues You for Their Security Deposit

A gavel and a name plate with the engraving Tenancy LawAsk any rental property owner it’s happened to, and they’ll tell you that it’s no fun to be sued. It’s stressful, time-consuming, and can be expensive when someone takes you to court. But tenants sometimes do file lawsuits against property owners or managers over disputes that arise.

One dispute that has the potential for legal action is one that occurs over the security deposit. California law allows for security deposit amounts to be no more than two months’ rent for an unfurnished unit and three months’ rent for a furnished place. Because California allows for small claims courts to handle suits up to $10,000, that’s where most security deposit cases are handled, which is why it’s cheap for tenants to file suits. They typically don’t need to hire an attorney.

Even if you follow state and local laws regarding security deposits, a tenant could challenge you in court over a dispute. Here’s what to do when a tenant sues you for their security deposit.

Take action immediately

Typically, before a case goes to court, the tenant will send what’s known as a demand letter to the owner or property manager. Even if you completely disagree with the tenant, you might view the letter as a notice to take action.

It’s usually best to stay out of court, so you could try to settle with the tenant before a lawsuit is filed. If there’s no way to reach a compromise, and the case is headed to court, it’s important to get prepared. Preparedness is the way to win suits over security deposits.

California law requires landlords to send an itemized list of deductions from the security deposit not returned to the renter. Acceptable deductions include repairs needed over and above normal wear and tear, cleaning, and unpaid rent. A property manager that provides property management in Santa Clara County will usually include a clause in the lease a tenant signs that allows them to deduct costs such as late fees or attorney fees. The owner or property manager must include invoices or receipts that support the deductions made.

Getting ready to go to court, then, is mostly a matter of gathering all the documentation you have and making copies to bring to court. You should also be able to provide dates you communicated with the tenant about the dispute.

Explain your case

When it’s time to appear in court, the tenant will present their case to a judge – there’s no jury in small claims court – and you’ll then explain yours. If your documentation of all the expenses deducted from the security deposit is strong, and you’ve met the time requirements (security deposits in California must be returned in 21 days), the law is on your side.

That’s why preparedness is the key. If you can’t provide evidence of legitimate reasons for withholding some or all of the security deposit, your case isn’t as strong. And if the judge rules against you, there’s a penalty on top of the deposit you’ll be ordered to return, up to double the amount of the deposit.

How to avoid a lawsuit

Of course, the easiest way to prepare is to ensure you’re not in a position to be sued in the first place. One solution might be to hire a property management company to manage the property for you. A company that does property management in Santa Clara County would be familiar with all state and local laws and will provide a lease that protects the property owner.

A property management company will also handle move-in and move-out inspections that can help eliminate disputes. A professional management firm should also handle record-keeping so that if there is a dispute, the rental property owner is on a solid legal footing.

Being sued for a security deposit can be stressful, but knowing that everything has been managed properly might provide some peace of mind.

Valley Management Group has been providing trustworthy and affordable property management services to both rental owners and tenants alike in Santa Clara County for over 40 years. If you own a rental property in Santa Clara County, contact us for a free property management quote and one free month of property management services.

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