One of the most common areas of confusion regarding security deposits is knowing what to put on the Notice of Intention to Impose Claim on Security Deposit, hereinafter called the “Notice”, the form which according to FS 83.49 must be sent out to the resident within 30 days of the resident vacating the premises. We find managers do their best to figure out what the resident owes, either due to breaking the lease or simply leaving at the end of the lease with damages to the premise or otherwise owing the manager money. The problem is that this form only is dealing with the security deposit, or in some cases, advance rent that the manager is holding. This is not a “final bill” to the resident or the total amount a resident will possibly eventually owe. This common misconception causes managers to frequently fill out the Notice incorrectly.

What Amounts Are Put on the “Notice?”

A security deposit is the amount the resident owes to cover damages to the premises, monies owed to the manager under the terms of the lease and for full and faithful performance of the lease terms.

1. The resident breaks the lease by vacating

If the resident simply “skips” out of the lease, the manager can charge the resident rent that is owed at the time the resident skips out. The manager cannot accelerate the rent. Acceleration occurs when the resident is immediately charged for all the remaining rent owed under the terms of the lease. While the lease may provide for this, and it seems logical, acceleration is not a specific collection right granted to managers under Florida default remedies. A “skipping” resident owes rent due at the time of the skip, damages to the premises which exceed ordinary wear and tear, and any other amount legally chargeable to the resident under the lease terms. If a resident paid rent for June and skipped out June 20, it would seem that the resident would owe no rent, and that no rent could be placed upon the Notice. This is certainly not the intent of the statute, and since the manager has 30 days to send out the Notice, by July 1, the resident will owe another month’s rent which can and should be put on the Notice. You do not want to be returning the full security deposit if the resident skips out on the lease, as he will owe you rent. As you can see though, if the unit stays vacant, the resident will owe you more rent, presumably until the earlier of the end of the lease or until the unit is re-rented. How can you put this on the Notice? You can’t, and you don’t need to. The notice is only dealing with the SECURITY DEPOSIT and ADVANCE RENT funds!!!!

2. The resident is evicted

If your resident is evicted, you will be charging them everything in paragraph 1 above, plus your attorney’s fees and court costs, if your lease states that you are entitled to these sums

3. The resident vacates at the end of the lease

If your resident vacates as planned at the end of the lease owing no rent, you will not be charging the resident any rent on the notice, just damages that exceed ordinary wear and tear, and any other sums due under the terms of the lease.

Sums Owed That Exceed the Security Deposits

Often a resident will owe significant sums that exceed the security deposit, or after you send the Notice, you discover at a later time some further damage that was not caught or actually hidden from the manager. If you already claimed the entire deposit, this is not relevant to the prior Notice. While you do want to list on the Notice everything possible that is owed by the resident within the 30 days window you have to send the Notice, if there are other amounts that the resident owes you as time goes on, these amounts will still be owed to you by the resident.

The Danger of the “Notice”

As many managers incorrectly think that the amount on the Notice is the end all total amount owed, the resident also may think this. If a manager were to later sue a resident for accrued rent or later discovered damage, the resident could conceivably convince a judge that since it was not on the Notice, it is not owed. This common misconception can be cleared up by placing the following wording on the bottom of the Notice. This wording, though not required by Florida law, is a reminder to the resident and to the manager that the amounts you have listed on the Notice may not be the actual total amount that the resident will owe you.

This Notice Of Intention to Impose Claim on Security Deposit does not waive or limit any of manager's rights to damages or amounts due which may exceed security deposit or amounts listed on this form. 

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A tenant’s security deposit is sacred in the eyes of the law. Specific timing issues are laid out in Florida Statutes which must be followed to avoid the landlord having to refund the entire security deposit to the tenant, even if the tenant owes the landlord money. Many landlords fail to take the law seriously and are surprised when a tenant leaves owing a substantial amount of money to the landlord, only to demand the full security deposit back from the landlord because the landlord failed to send the notice out in time or get the tenant the balance of the deposit if any back in time.

When does the notice have to be sent to the tenant?

The required timing of the Notice of Intention to Impose Claim on Security Deposit, hereinafter “Notice”, depends on whether you are making a claim against the deposit or whether you are returning the full deposit to the tenant.

Timing of Notice when making a claim

If making a claim against the deposit, the Notice must be sent out within 30 days from the date that the tenant vacates the unit and not one day later. Failure to send out this Notice within the 30 days will result in the landlord having to refund the full amount of the security deposit to the tenant, regardless of amount owed to the landlord. There is no excuse for failing to send the Notice out within the 30 day timeframe. A number of years ago, the timeframe was 15 days. Now it is 30 days.

Timing of Notice when returning the full security deposit

If you are returning the full security deposit, you do not have to send out the Notice at all! Simply get the money in the mail within 15 days of the date that the tenant vacated the premises. Many apartment communities fail to send the money to the tenant within 15 days due to accounting issues and the time delays in requisitioning the money and getting a check from the corporate office. Unfortunately the judge does not care how your system works. The money must be sent out within 15 days period.

Returning a portion of the deposit

If you sent the Notice out and you are returning a portion of the deposit, you must return this portion of the deposit within 30 days from the date you sent out the Notice.

Examples: 1. Tenant vacates September 5 and you are not making a claim against the deposit. You must return the deposit by September 20. The Notice need not be used. Simply send the money.

2. Tenant vacates September 5 and you are returning some but not all of the deposit. You must send out the Notice by October 5 and you must return the balance of the deposit within 30 days from the date you sent out the Notice.

The Security Deposit Law 83.49 (3)(a)- (3)(c)

83.49 Deposit money or advance rent; duty of landlord and tenant

(3)(a) Upon the vacating of the premises for termination of the lease, if the landlord does not intend to impose a claim on the security deposit, the landlord shall have 15 days to return the security deposit together with interest if otherwise required, or the landlord shall have 30 days to give the tenant written notice by certified mail to the tenant's last known mailing address of his intention to impose a claim on the deposit and the reason for imposing the claim. The notice shall contain a statement in substantially the following form: This is a notice of my intention to impose a claim for damages in the amount of ____________ upon your security deposit, due to ________. It is sent to you as required by S. 83.49(3), Florida Statutes. You are hereby notified that you must object in writing to this deduction from your security deposit within 15 days from the time you receive this notice or I will be authorized to deduct my claim from your security deposit. Your objection must be sent to (landlord's address). If the landlord fails to give the required notice within the 30 day period, he forfeits his right to impose a claim upon the security deposit. (b) Unless the tenant objects to the imposition of the landlord's claim or the amount thereof within 15 days after receipt of the landlord's notice of intention to impose a claim, the landlord may then deduct the amount of his claim and shall remit the balance of the deposit to the tenant within 30 days after the date of the notice of intention to impose a claim for damages. (c) If either party institutes an action in a court of competent jurisdiction to adjudicate his right to the security deposit, the prevailing party is entitled to receive his court costs plus a reasonable fee for his attorney. The court shall advance the cause on the calendar.

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The tenant vacated, and you did an inspection and made the claim on the security deposit by certified mail as the law provides. Your maintenance staff then discovers some serious problems that you missed in your inspection, including fleas, bad touch up paint by the tenant and a hidden rug burn. Can you go back and send out a revised claim? Have you waived your rights to making an additional claim? This situation will arise at some point when managing property, and timing is crucial. Simply put, if you are outside the 30 day window as required by Florida law, you will not be able to claim the damages from the security deposit. While this is the bad news, the good news is that the tenant still may owe you the money, and you may not have waived your rights to go after the tenant for this additional money.

Florida law provides that you have 30 days from the date that the tenant vacates the premises to send out the Notice of intention to Impose Claim on Security Deposit; for the purposes of this article, we will just call it the Notice. Years ago, Florida law only allowed 15 days to make a claim, but now there is some more time to examine the premises and make a decision as to what is owed. Keep in mind that we are dealing with making a claim against a security deposit, not figuring out what a tenant will or may ultimately owe you.

When should you send out the claim letter?

Waiting until the 29th day is always risky, as you open yourself up to a tenant claiming they left on one day and you claiming they left on another. A dispute subsequently arises which could result in you having to return the entire security deposit to the tenant, if a judge felt you were outside the 30 day window. We never want this to happen, so you should not wait until the 30 days are about to expire.

Get in the unit as soon as possible!

It is important that as soon as you get possession from the tenant, be it from surrender, eviction or abandonment, you get into the unit quickly. The purpose of this is not to make the claim as soon as possible, but to document the condition of the unit quickly, so a tenant does not later say that the property was damaged by someone else AFTER they turned over possession to you. A property could indeed be damaged by someone breaking into that unit some time after your tenant has vacated. If you attempt to charge the tenant for this damage, he may object and successfully convince a judge that the damage occurred after he vacated. Should you make the claim on the security deposit right away? No. If you are certain that you are going to make a claim, this is the time to pause and carefully begin documenting the damages and comparing the condition reflected in the move-in inspection report that hopefully you have.

You sent out the claim letter but discover more damages

Some property damage is not immediately evident at the time of the tenant moves out. Tenants sometimes successfully hide damages, paint over poorly filled holes in walls, mask odors with spray deodorants, or the unit may all of a sudden be infested with fleas two weeks after the tenant moves out! A unit that is heavily cooled by air conditioning may not reveal the true smell of the years of cigarette smoking or urine damage to a carpet. Some damages are simply missed in error by the landlord and later caught by the maintenance technician, who is more experienced in these matters and finds tenant damage at a later time. Occasionally, you may be managing the property for an owner who decides to find damages that you did not find.

You are within the 30 day window

If you have sent out the Notice already but are still within your 30 day window, you can simply prepare another one and send it out again to the tenant in the same fashion as the first Notice, being sure to again comply with the certified mail requirement. The tenant will of course be upset about the bad news, but you are within your rights to do this. Remember that the tenant does not have to receive the notice within 30 days; you simply must send the notice within 30 days.

You are outside the 30 day window

If you are outside the 30 day window and do not fall under any exception to the requirement to send the notice out within the 30 days, you will not be able to claim anything more from the security deposit than referenced in the initial Notice. The tenant should receive the “balance due tenant” indicated in the initial Notice. Even if the tenant owes you the money, the tenant should receive this balance back.

Does the tenant owe you the money?

The tenant will still owe you the money, but you will not be able to retain it from the security deposit. You will be able to send it to collections, try to get the tenant to pay or sue the tenant if you wish. The main issue is that the funds you are holding cannot be used for the amounts owed.

Suppose the original amount and the revised amount owed both exceed the security deposit?

Let us assume you are holding a $1000 security deposit and originally claimed damages of $1200 within the 30 day period. After the 30 day period expires, you discover another $500 in damages. You may feel that there is a need to send a revised Notice, but this is not necessary, and besides, it is too late to send an amended Notice. You already have claimed the entire security deposit, so this intent has already been established. Remember, a Notice is not a bill or a final accounting you are sending the tenant. It is simply a notice stating how much you will be taking from the security deposit as required by law. However, to cite the above example, if you discover more damages within the 30 day period, it is good practice to send an amended Notice, since some of the items claimed in your initial Notice may not hold up in court, if a dispute leads to deposit litigation.

Avoiding a possible waiver issue

There is a possibility of a tenant claiming that since you sent the Notice of Intention to impose Claim with a particular amount stated, you are now stuck with it and cannot now charge the tenant any more. For example, if a tenant breaks a lease owing you one month’s rent and you make a claim for this one month’s rent, more months of rent may become due if the unit remains vacant. You certainly do not want the tenant to think that just because one month was subtracted from the security deposit, this is all the tenant is liable to you for. The standard notice wording as stated in Florida Statute 83.49 does not address this, so we recommend that the following wording be placed on the bottom of your Notice just to be extra safe:

This notice does not waive or limit any of landlord's rights to damages or amounts due which may exceed the security deposit or the amounts listed on this form.

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Most resident security deposits are held in non-interest bearing accounts in a Florida banking institution. This is due to the fact that most property managers do not feel it is worthwhile to keep the funds in an interest bearing account, as under current Florida law, the manager will be required to account for the interest each year and either give this interest to the resident in whole or part. Often the banks will not impose their monthly fees if the account is non-interest bearing, as the banks are reaping the rewards of the money held by them. Even in light of Florida law, many property managers see these often large deposits building in the bank accounts and are desirous of keeping the interest for their company. If you have 200 residents each paying $500.00 in a security deposit, this amounts to $100,000.00 sitting in a bank, and potentially $5,000.00 in interest, assuming a 5% interest rate, being lost to the banks and not being received by the property manager. Unfortunately, Florida law simply does not allow the property manager to keep all the interest. This article will examine the current law regarding security deposits, how they are held and where the interest can go.

What Must Be Held In That Escrow Account?

Deposit money must be held in the escrow account. Deposit money is defined by Florida law as any money held by the manager on behalf of the resident, including, but not limited to, damage deposits, security deposits, advance rent deposit, pet deposit, or any contractual deposit agreed to between manager and resident either in writing or orally. "Security deposits" means any moneys held by the manager as security for the performance of the rental agreement, including but not limited to monetary damage to the manager caused by the resident's breach of lease prior to the expiration thereof. By the way, this definition is word for word from Florida Statutes Section 83.43 (11) and (12).

As you can see, if you collect money from a resident and that money is not a “fee” but a potentially refundable “deposit” or “advance rent”, it must be retained in the escrow account and accounted for by the property manager.

The Non-Interest Bearing Account

Unfortunately, most deposit money is held in a non-interest bearing account for reasons previously mentioned. The bank retains all the interest, and the property manager and resident get absolutely nothing in return.

If anything, the property manager may get their bank fees waived, and this is common practice in many banks. The money must be in a separate escrow account in a Florida banking institution.

The Interest Bearing Account

Florida law states that if the deposit money is held in an interest bearing account, the property manager has two choices when dealing with the interest.

Choice #1: The resident must receive of that interest paid at least 75% of the annualized average rate payable on such account. For the sake of simplicity, let’s say that the deposit was $1000.00 and the interest paid on that money was $50.00. The property manager can choose to give the entire $50.00 to the resident OR can give the resident $37.50 and retain $12.50 for the property management company.

Choice #2: The property manager must pay the resident 5% simple interest per year.

When and How Must Interest be Paid to the Resident if Choice #1 or #2 is picked?

While this may come as a surprise to many property managers, the interest must be paid to the resident directly or as a rent credit at least once annually, which means usually at the time of the lease end or renewal of the lease. Many property managers roll over the deposit money into a renewal, forgetting that they must account to the resident for the interest and pay this interest or credit this interest to the rent. While there is no specific penalty to a manager listed in the Landlord/Tenant Act, managers who are licensed by the Division of Real Estate could find themselves subject to a serious FREC complaint for a simple mistake such as this.

So You Still Want To Keep All The Interest?

Some of our clients, against our advice, specifically agree with the resident in writing in the lease agreement that the property manager shall retain all the interest on the deposits. These staunch believers in freedom of contract feel that if all parties are in agreement, it should be allowed and will not be challenged. Unfortunately, Florida law does not draw clear lines of when and where we can move outside of the Landlord/Tenant Act and contractually agree to something that is not specifically permitted in the Act. Florida Real Estate Law specifically allows parties to a sales transaction to agree who retains the interest on the deposits, but unfortunately, we do not have this specific authorization in the Act. We have seen clients who retain the interest in full audited on a regular basis, and the auditors have not cited them for this practice. If you choose to keep all the interest, do so at your own risk, and remember that in the event of litigated disputes, you always have to fear the potential of class action litigation. If you do the same or similar thing to all your residents, attorneys can and will sue you in a class action. This can result in huge sums, including attorney fees and costs, paid by your company to your attorney, whether you win or lose, AND the plaintiff’s attorney, if you end up losing in court.

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Did you ever get that horrible feeling when you realized that you forgot to send the “Notice of Intention to Impose Claim on the Security Deposit” out to the resident? For years we have drilled into our clients’ heads the importance of sending the Notice (we will call it that from this point on) out within 30 days of the resident vacating, but sometimes it just gets forgotten. You may have evicted the resident, and the last thing on your mind is returning any money to the resident as the resident owes so much to you. The resident may have skipped out in the middle of the night owing 3 months’ rent, and again you would not think of returning any money to him, or you realize the resident is gone and there is $5000.00 worth of damage to the unit. Unfortunately, the fact that the resident owes you and will not be getting a dime back does not excuse you from sending out the Notice. Your failure to send out the notice within the time period as required by law could result in you having to return the entire security deposit to the resident. This could be a devastating occurrence especially if the security deposit was a significant amount of money. So, you forgot to send the Notice out within 30 days of the resident vacating. Is it over now? Do you have to return the money to the resident? Possibly NOT. Florida law has carved out an exception to the 30 day rule which MAY be able to save you.

The General Rule

The general rule which almost every property manager knows is found in Florida Statutes 83.49, the security deposit statute. The statute provides that upon the “vacating of the premises for termination of the lease”, the manager shall have 30 days from that date to send out the Notice to the resident’s last known address, which of course is the unit the resident was renting unless they gave you a new address. The law used to be 15 days, but through the efforts of the Florida Apartment Association in getting the law changed, the manager has 30 days to send out this Notice. The confusing part of the statute has to do with the wording “vacating the premise for termination of the lease”. This wording is open to more than one interpretation. Obviously it would apply to the resident leaving at the end of the lease, but what about an eviction? Does an eviction terminate the “lease”, or does it terminate the “tenancy”? A good argument can be made that if a resident does not fulfill the lease term, whether by abandonment, surrender, or eviction, and the manager tries to rerent the unit on the residents’ account under Florida Statute 83.595, the 30-day counting period should not start until the lease expiration date or the date a replacement resident takes occupancy, whichever occurs earlier. Under this statutory interpretation, the date under which the resident loses the right of possession and the date under which the lease obligations are terminated can be two very different dates. However, some judges may not accept this argument, and will start the 30-day counting period strictly from when the unit was physically vacated. Therefore, the safe approach is to remember to send the Notice out within 30 days from the date the resident physically vacates. If you know when the resident vacates, as in an eviction being finalized with the sheriff, or at the end of a lease, you know when to begin counting your 30 days. But wait. We forgot to send the notice out, and this is what this article is all about!!!!

The Penalty For Not Following the Rule

If you fail to send the Notice out within 30 days, you forfeit the right to impose a claim on the security deposit. In other words, you must return the full security deposit to the resident.

The Exception to the Rule

There is an exception to the rule that you must send out the Notice within 30 days. We are going to tell it to you, but after you read this article, we want you to forget you ever heard about the exception, and we want you to ALWAYS get the Notice mailed within 30 days.

FS 83.49 (5) Except when otherwise provided by the terms of a written lease, any resident who vacates or abandons the premises prior to the expiration of the term specified in the written lease, or any resident who vacates or abandons premises which are the subject of a tenancy from week to week, month to month, quarter to quarter, or year to year, shall give at least 7 days' written notice by certified mail or personal delivery to the manager prior to vacating or abandoning the premises, which notice shall include the address where the resident may be reached. Failure to give such notice shall relieve the manager of the notice requirement of paragraph (3) (a) but shall not waive any right the resident may have to the security deposit or any part of it.

An Examination of this Exception

As you can see under FS 83.49(5), if a resident abandons or vacates before the end of the lease, the resident is required to give at least 7 days’ written notice by certified mail or personal delivery, telling you he is vacating and giving you a forwarding address. AHA! Many residents do not do this. They simply skip out in the middle of the night, or tell you they are leaving and then leave. In this case YOU DO NOT have to send out the NOTICE within 30 days! If the resident is not on a lease but the tenancy is now month to month or week to week, the same rule applies. If the resident fails to give you the notice of vacating and a forwarding address at least 7 days before they vacate, you DO NOT have to send out the Notice to them. Here is a recap.

1. The resident must give you at least 7 days’ written notice before they vacate, advising you that she is vacating.

2. The notice from the resident must be hand delivered or sent to you by certified mail.

Why Does the Law Provide This Exception?

The reason this exception exists is so that you are not under the 30-day requirement when you have no idea if the resident has in fact vacated. Often you do not know the date the resident vacates, so you should not be held to a timetable when you do not know when that time period starts. This is a manager protection exception.

The Danger of Using the Exception

In all the years of training property managers, we frequently avoid talking about the exception to the rule that you must send the Notice out within 30 days, and you might have wondered why. The reason is simple. People are dishonest, and when the resident finds out that he was supposed to give you at least seven days’ written notice by hand delivery or certified mail stating when he was leaving and giving you his new forwarding address, a copy of this notice can miraculously appear, and the resident will tell the judge that he in fact DID give you this notice. Now you are faced with having to explain to a judge that you did not receive the notice, and the resident will try to convince the judge that he did give you the notice. Who will the judge believe? You or the resident? Never underestimate how convincingly someone can lie to a judge.

You Know the Exception, Now What?

Now that you know the exception to the rule, forget about it. Always get the Notice out within the 30-day time period as required by law. Assume the resident will lie and say that he DID give you at least 7 days’ notice before he left, and that he DID give you a forwarding address. Only use the exception to the rule if you are in a bind and have forgotten to send out the Notice within the 30 days; possibly the exception will be there to help you. If you do forget to send out the Notice, go ahead and do it anyway even if you are outside the 30-day window. There is no need to alert the resident to the fact that they did not give you the required 7 day notice, because this will give the resident ample opportunity to fabricate the notice after the fact. A number of years ago, one of our clients was being sued by an attorney who argued to the judge that our client failed to send the Notice out within 30 days. It was true. Our client did not send the Notice out. We turned to the resident and asked if he had given our client a notice at least 7 days prior to vacating with his new forwarding address. The resident said “no”, and we won the case. Let this limited, technical exception work in your favor when needed; don’t open yourself up unnecessarily to having to use it. As soon as you think the resident has vacated, begin counting your days and get your Notice out!!! Whether it be a skip, an eviction or the natural ending of the lease, get the Notice out.

“Serving the Property Management Professional”

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A common misconception among landlords is that the tenant who breaches his lease automatically forfeits his security deposit as the minimum damages. Some landlords believe the forfeited security deposit is in addition to any other damages. Most landlords bolster their claim to the automatic forfeiture of the security deposit for breach of the lease with supporting lease language. As a general rule we advise that landlords avoid automatic security deposit forfeitures for breach of the lease. There are some exceptions to the general rule and I touch on them at the end of the article.

An invitation to litigation

The automatic security deposit forfeiture is an invitation to litigation. First, the fact that it is an automatic forfeiture doesn’t relieve the landlord of the responsibility of timely sending the notice of claim on the security deposit. Second, the tenant receives a notice of claim that states the deposit is forfeited. It may or may not include additional itemized damages for the lease breach.

Most Florida county court judges will feel that the automatic security deposit forfeiture is inequitable. They will find the lease forfeiture clause unconscionable and refuse to enforce it, citing the Florida statute that permits them to do so. If that is the landlord’s only reason on the notice for claiming the deposit, the landlord’s reason is now invalid, and the notice of claim may be found to be statutorily insufficient. The landlord may lose at this point without any opportunity to present his case.

The judge may allow the landlord to present proof of the damages. Relying on the automatic forfeiture clause, the landlord may not have done an inspection of the premises or obtained any proof of the damage (pictures) or saved any evidence of the cost of repair. Even the fair claims of the landlord can fail for lack of proof.

The lawsuit scenario

Unfortunately for the landlord the scenario in which this happens is the tenant’s lawsuit for return of his security deposit. If the tenant recovers any portion of his security deposit, he is generally entitled to his attorney fees. As we are all too well aware, attorney fees can be astronomical compared to the small amount of deposit money recovered.

A trap for the unwary

If the litigation risk wasn’t enough, the automatic security deposit forfeiture is a trap for the unwary landlord. The legally unsophisticated landlord or the attorney inexperienced in landlord/tenant law may draft an automatic forfeiture clause that inadvertently limits the landlord to the security deposit as the only damages amount.

The rules of lease interpretation provide that ambiguities are decided against the lease drafter. Landlords commonly include lease provisions providing for other damages (rent until relet, cleaning charges, use beyond ordinary wear and tear) or for damages as provided under Florida law. These provisions are in addition to the automatic security deposit forfeiture for breach of the lease. Poorly drafted lease language can result in the court holding that the damages clauses are confusing, ambiguous or even contradictory. The security deposit forfeiture can become the landlord’s exclusive remedy, in spite of actual damages exceeding the security deposit amount.

The exception

As I indicated above there are exceptions to the rule. Security deposit forfeiture clauses may be found valid when used as the damages for the failure to give notice at the end of the lease. This is treated in other articles. They are valid as part of well drafted vacate agreements.

Having read this article I hope landlords will see that the automatic security deposit forfeiture for breach of the lease is a risky method to collect a deposit. If the tenant’s breach results in damages in excess of the security deposit, then the landlord should forego even mentioning any automatic forfeiture and apply the damages to the deposit. If they are less than the deposit, then the landlord should contemplate his explanation to a judge for keeping the “unearned” money, while the tenant’s attorney smiles at his easy attorney fees.

“Serving the Property Management Professional”

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Everybody knows about security deposits, right? You’ve been handling them for so long, you could do them in your sleep. Nothing new to learn. Yikes – Sounds like a situation ripe for a crisis. Although you learned the basics when you started your career, bad habits may have crept into your repertoire.

Security deposits are handled by every property manager. The basics are learned when one starts in the business and then, for the most part, forgotten as habits become learned. Complacency is dangerous, for some of the procedures that become ingrained are simply wrong. Here are a few “bad notions” to be corrected.

“We Don’t Send a Claim if the Resident Was Evicted.”

An eviction does not mean the resident automatically forfeits her security deposit. Even though a resident was evicted, she is entitled to receive the claim you are making against her deposit.

Every time a resident vacates, a claim on the security deposit should be sent. This is true whether the resident vacates under a writ of possession or surrenders keys four months before the lease expires.

It is common that a resident who was evicted “used up” all of the security deposit. Typically, the resident owes more than the amount of the security deposit. Nonetheless, a claim must be made on the deposit.

“We use the deposit for repairs during the tenancy if the tenant caused damages.”

The deposit can only be disbursed or used after the tenant has vacated and the claims process has been followed. Never can the manager use part of the deposit to do repairs during the tenancy. Never can the manager start cutting checks from the deposit before the claims process has run its course.

The only exception is if both the landlord and the tenant sign an agreement for the deposit to be used in this manner. Even if the parties are willing to sign such an agreement, the landlord needs to consider whether this is a wise move. Certainly, it allows for a “band-aid” fix to an immediate problem, but it also depletes the reserve for other crises that may arise down the line.

“We give the deposit to the owner if he asks to hold it in his own account.”

Florida law requires that all security deposits and advance rent shall be held in a Florida banking institution and that the funds not be commingled with other funds. Let’s break that down.

The account must be in a bank that is chartered to do business in Florida. Most, but not all, banks that are physically located within the state fit into this category. [Not sure about your bank? Ask them if they are chartered in Florida. They easily know the answer.] If an out-of-state owner wants to hold the deposit in his own account, it needs to meet this criteria. It is not sufficient for the owner to place the deposit in a national bank located in his home state which has branches in Florida.

The deposit and advance rent must be kept separate from other funds. Property managers know this means the deposit cannot be placed in the operating account. Owners are less likely to understand the issue. If an owner is holding a deposit, it must be in an account that is set up for the purpose of holding the deposit. It cannot be mixed in with the owner’s other funds in a checking or saving account.

We send a Statement of Account and do not use any special form.

By law, you must send the Notice of Intention to Impose Claim on the deposit which is similar to what Florida Statutes priovides.

This wording is crucial and must be on the form: This is a notice of the Landlord's intention to impose a claim for damages upon your security deposit.  It is sent to you as required by section 83.49(3), Florida Statutes.  You are hereby notified that you must object in writing to this deduction from your security deposit within fifteen (15) days from the time you receive this notice or the Landlord will be authorized to deduct its claim from your security deposit.  Your objection must be sent to the Landlord at the address shown below.

We do not disburse the deposit until both landlord and tenant agree about how it is to be used.”

This would be nice to do, but it is not always practical, and it is not required by the law. Rather, Florida law requires a property manager to follow the claims process as well as honor the obligations to the property owner who is her client.

Florida law requires that a landlord return the security deposit within 15 days after the tenant vacates the premises OR that the landlord make a claim against the deposit by sending the written claim by certified mail within 30 days after the tenant vacates the premises. Once a claim is made, a tenant has 15 days to write his objection.

If the property manager receives an objection from the tenant, the property manager must give it consideration. She does not have to accept the objection as the final word on the matter. If the property manager and the owner feel the tenant’s objection is without merit, then the property manager may disburse the deposit according to the directions of the owner (which should be consistent with the claim that was made). Such a discretionary disbursement is proper under the law, provided the owner’s directions are not unlawful. However, the agent’s thankless job of exercising discretion may still carry some risk, even though the deposit would ultimately be allocated between the owner and the tenant in litigation.

“We don’t send a claim if the resident told us to keep the security deposit.” Sometimes a resident will orally tell the manager to keep the deposit. “Use it for what I owe you.” No matter how much you trust the resident’s word, send the claim on the security deposit.

Every time a resident vacates, a claim on the security deposit should be sent. Even if the resident consents to the manager keeping the deposit, the resident is still entitled to receive a claim on the deposit.

Oral directions are only as good as the paper they are written on. They give no protection to the manager.

In addition, if there is more than one resident on the lease, getting the “go ahead” from one resident simply cannot waive the rights of the other residents. Send the claim to all the residents on the lease.

“We Don’t Send a Claim if the Resident Didn’t Give Us a Forwarding Address.”

The statute requires the manager to send a claim on the deposit no later than 30 days after the resident has vacated. The statute also says, in a situation where the resident vacates the premises early, the claim only has to be sent if the resident gave the manager a forwarding address seven days before the resident vacated. Sounds like a great loophole. It’s not. It should never be relied upon.

Every time a resident vacates, a claim on the security deposit should be sent. It should be sent to the last known address, even if that is the unit he just vacated.

The problem with the “loophole” is it contains its own loopholes, making it very difficult for folks (including judges!) to figure out. It is far better to spend the money for the mailing, than to risk being forced to return the security deposit.

“Serving the Property Management Professional”

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Managers and leasing teams invest their time and effort in guiding an applicant through the application process. They may even turn other applicants away or hold the rental for him. After a successful application process (completed application, credit check, criminal background) the applicant informs you that he won’t be renting. He wants his application deposit back. Under what circumstances can you keep it?

Any actual damages?

At the outset please note we advise that the application deposit be returned unless the landlord can show actual damages, that is a financial loss, such as holding the unit while turning away other qualified applicants. An apartment community with an inventory of similar apartments may have difficulty showing this type of financial loss. A residential property manager with distinct single family homes would be more likely to have a held-off-the-market loss of rent.

Penalties and forfeitures are disfavored.

Our analysis begins with the recognition that Florida law in general does not look favorably upon contract penalties or forfeitures. Penalties and forfeitures are not enforceable in numerous areas of Florida law, either by express statutory prohibition or by judicial interpretation relying on such concepts as unconscionable provisions.

The documents.

With that caution in mind we turn to an examination of the application and any other documents relied upon for the right to retain the deposit. The wording both to avoid the forfeiture and to authorize forfeiture must be clear and unambiguous: the grace period, the time and method of the landlord’s application acceptance, the time and method of the applicant’s cancellation, the amount of forfeiture, etc. The burden of proof will be on the landlord. Not only will the lack of strict compliance, but also the inability to prove strict compliance, with the terms of the forfeiture be fatal. If the amount to be retained on the application form is left blank, or other sections of the application addressing deposit forfeiture are left blank, this is often a fatal error.

The oral contradiction.

Even a clearly written, unambiguous document can be contradicted by the oral misrepresentations of the landlord’s representatives. The applicant will often state that the leasing staff assured him that his application deposit would be returned without mentioning any conditions. A good counter to this claim is a leasing checklist, checked-off and signed by the leasing agent, which includes the disclosure of the application deposit policy. A separate applicant signature line or initial space is often placed next to the forfeiture language for emphasis.

Is there an agreement to lease?

Has the applicant, who has not reviewed the leasing documents before signing the application, entered into any agreement to rent, regardless of a signed deposit forfeiture? The point of the transaction is the rental of a unit. A rental is not accomplished when the application is accepted, but only when the applicant signs the lease. An accepted applicant who in good faith rejects certain lease provisions or any other leasing document provisions (community rules and regulations) has never agreed to rent, but only agreed to enter into negotiations to rent. Rather it is the landlord who by refusing to negotiate the lease terms is refusing to rent. The application deposit should be returned.

Is the application deposit a security deposit?

Is the application deposit a security deposit under the Chapter 83, The Florida Residential Landlord Tenant Act? Neither the statutes themselves nor the case law answers this question directly. We can postulate that at the application stage we don’t have a rental agreement yet. Without a rental agreement, we don’t have a landlord/tenant relationship. Without a landlord/tenant relationship, Chapter 83 doesn’t apply. Further, FS 83.43(7) defines a rental agreement as providing for the use and occupancy of premises. FS 83.49 addresses money deposited on a rental agreement. A good argument can be made that with no lease agreement, the deposit is not subject to the bank deposit and notice of claim requirements of FS 83.49.

Florida Real Estate Commission rules

For residential property managers there is one more consideration, the Florida Real Estate Commission, FREC has not taken a clear position on whether section FS 83.49 applies. To be on the safe side, assume it does, and if you are going to keep the deposit, follow the normal claim upon the security deposit as outlined in FS 83.49, even though it may not in fact be a security deposit.

The risk of litigation.

As you can see from this article the pitfalls in keeping an application deposit are many. For this reason we advise our clients that the application deposit should be returned unless the client can show actual monetary loss. The time, effort and expense to defend a small claims case will outweigh any income derived from tenuous application deposit forfeiture, not to mention the potential for a class action claim.

“Serving the Property Management Professional”

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All security deposits and advanced rents are governed by Florida Statute Section 83.49.  The statute obligates the landlord to inform the tenant of particular information whenever a security deposit or advance rent is held.

When disclosures must be made.

No later than 30 days after a landlord receives advance rent or a security deposit, the landlord must make the disclosures to the tenant.  The notification must be in writing and given in person or mailed to the tenant.

Many times, the disclosure is in the lease itself.  This is the best way to present the information, because later, there can be no dispute that the disclosure was made. 

What must be disclosed.

The landlord must disclose where and how the security deposit and advance rent is being held.  The disclosure must tell the tenant the rate of interest, if any, the tenant is to receive and when the interest payments are to be paid to the tenant.

The written disclosure must show:

-- The name and address of the depository where the advance rent or security deposit is being held;

It is best to use the whole street address of the bank, not just the name of the City. However, the complete name of the bank and the name of the City is likely to be considered adequate.

-- Whether the advance rent or security deposit is being held in a separate account for the benefit of the tenant or is commingled with other funds of the landlord;

It does NOT mean that it is ok to commingle the funds.

-- Whether the funds are deposited in an interest-bearing or non-interest bearing account.
If the account is interest-bearing, the disclosure must state when the interest payments will be made to the tenant.

-- Include a copy of the provisions of Florida Statute 83.49 (3).

Subsequent disclosures.

After the landlord makes the initial disclosures, circumstances can change – a bank closes, a new owner takes over, etc.  If the landlord changes the manner or location in which the funds are being held, the landlord must notify the tenant, in writing, within 30 days of the change.

Consequences of non-disclosure.

Unlike other portions of the security deposit statute, there is no clearly defined “penalty” to be applied to a landlord who fails to make the disclosures.  Thus, a tenant who sues a landlord for failing to make the required disclosures must prove that the non-disclosure resulted in losses suffered by the tenant.

For licensed real estate professionals, the failure to make the disclosures can be a violation of FREC rules. 

Even if there is no lawsuit or FREC complaint, the failure to disclose marks a very sloppy lease-up procedure.  It tends to cast the landlord in a very poor light, which can be problematic if the landlord has to defend himself before a judge. 

“Serving the Property Management Professional”

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A hundred years ago, a landlord had few obligations in how he handled the security deposit. There was no statute telling him to keep it separate from his other funds. There was no obligation to make a “claim” on the deposit. He did not have to tell the tenant where the deposit was being held. That was then, this is now.

What does the statute cover?

All security deposits are governed by Florida Statute Section 83.49. The statute defines a security deposit as all funds that are “deposited or advanced by a tenant on a rental agreement as security for performance of the rental agreement or as advance rent for other than the next immediate rental period.” That means that any money held for some future event, like future rent coming due or repairing damages after the tenant moves out, is covered by the statute.

Three ways to hold the funds.

The landlord is obligated to hold the security deposit and advance rent in one of three ways.

The first option is to hold it in a separate non-interest-bearing account in a Florida banking institution. The landlord cannot commingle the money with any other funds of his or otherwise make use of the funds, until the funds are actually due the landlord.

The second option is to hold the security deposit in a separate interest-bearing account in a Florida banking institution. If this option is used, the tenant is entitled to receive interest. The amount of interest shall either be 75 percent of the annualized average interest rate payable on the account OR 5 percent per year, simple interest. The landlord chooses. As with the first option, the landlord cannot commingle the money with any other funds of his or otherwise make use of the funds, until the funds are actually due the landlord.

The third option is to post a surety bond. The bond must be in an amount equal to the total amount of the security deposits and advance rent or $50,000, whichever is less. This option is so rarely used that this article will skip the remaining details.

Keeping the deposit in a Florida bank.

Any security deposit account, whether interest bearing or not, MUST be kept in a Florida bank.

The account must be in a bank that is chartered to do business in Florida. Most, but not all, banks that are physically located within the state fit into this category. [Not sure about your bank? Ask them if they are chartered in Florida. They easily know the answer.] If an out-of-state owner wants to hold the deposit in his own account, it needs to meet this criteria. It is not sufficient for the owner to place the deposit in a national bank located in his home state which has branches in Florida.

Keeping deposit funds separate.

The deposit and advance rent must be kept separate from other funds.

If an agent collects the funds on behalf of the landlord, the agent should either deposit them into the escrow account that is set up in the agent’s office, OR send the funds to the Florida bank account that the landlord has set up. It is not proper to send them directly to the landlord.

If an owner is holding a deposit, it must be in an account that is set up for the purpose of holding the deposit. It cannot be mixed in with the owner’s other funds in a checking or saving account.

“Serving the Property Management Professional”

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