Responsibly Managing Security Deposits with a Landlord-Itemized List of Damages Template

Dealing with property damage is one of the most stressful aspects of being a landlord. In addition to the time-consuming nature of making repairs, remedying extensive damage could affect your rental cash flow by requiring you to go over budget. 

No property owner wants to be in this predicament, but unfortunately, it's always a possibility. Most property managers require tenants to pay a security deposit before moving in to balance out the risk of property damage.

In most cases, the rental owner would return the security deposit to the tenant at the end of their stay. However, if property damage occurs, the rental owner could deduct the cost of damages from the initial security deposit balance.

Obtaining a security deposit is a great way to protect yourself as a property owner. However, it's equally as important for property managers to provide tenants with an itemized list of damages when the security deposit returned to the tenant is less than what they originally paid.

Proactive rental owners often provide an itemized list of damages at the beginning of a renter’s tenancy to make sure they are aware of damages they could have to pay for through their security deposit. This helps both the tenant and landlord get on the same page about what types of property damage go beyond normal wear and tear.

In this article, we’ll discuss what an itemized list of damages is, why it’s important to have one, and what to consider when determining excessive property damage. We’ll also discuss specific damages that should and shouldn’t be included and provide a template you can use to create your own itemized list of damages.

What is an itemized list of damages?

An itemized list of damages lays out the property damage that a tenant has caused that goes beyond normal wear and tear and how much these damages cost. Also known as a security deposit return letter, itemized security deposit deduction letter, itemized deductions security deposit form, or a landlord-not-refunding security deposit letter, an itemized list of damages is meant to clarify what the security deposit can and cannot be used for.

This security deposit deduction letter is a useful tool for both tenants and landlords, because it establishes transparency regarding how the security deposit will be used.

Why is an itemized list of damages necessary?

While it may seem like extra, unnecessary work, creating an itemized list of damages is an essential part of the leasing process, as it allows rental owners to thoroughly document the condition of the property after a tenancy has ended.

This also allows property owners to place a dollar amount on rental damages. Serving as legal proof of the security deposit return process, an itemized security deposit deduction form ultimately helps reduce security deposit disputes between tenants and landlords if and when property damage occurs.

In addition to being a source of clarity, a security deposit refund letter helps fulfill compliance requirements. In some states, local laws govern how and when landlords can deduct expenses from a tenant's security deposit. Property owners can face penalties if they fail to provide tenants with either security deposit return letters or return security deposits within a certain timeframe.

A security deposit return form can also come in handy when reporting rental income and taxes, especially if a large amount of the security deposit was withheld to cover property damage or unpaid rent.

How to determine excessive property damage

Deciding what goes beyond normal wear and tear can be tricky. The same incident can lead to drastically different repairs, depending on the tenant's level of negligence and the condition of the rental property. Take, for instance, a clogged toilet — depending on what was flushed down the toilet and the last time your pipes were serviced, a clogged toilet could lead to something as simple as a temporary water overflow or something as complex as sewer line damage. 

Since repair costs can vary significantly depending on the circumstances, it’s best to be as specific as possible when creating your itemized list of damages. Instead of listing "clogged toilet" as damage, list "water damage to the bathroom" or "non-routine sewage line repair" as damages.

It’s also recommended to research how much each repair would cost to determine accurate price ranges. A few questions to ask when determining property damage repair costs are:

• How old is the damaged item? 
• How much did the item cost?
• Does the item need to be repaired or replaced?
• How long will it take to repair or replace the damaged item?
• Will you be losing rental income while the item is repaired or replaced? 
• Will you need to hire a professional to remedy the property damage?

It’s always a good idea to check your state’s security deposit laws before creating an itemized list of damages. Some states, such as Florida, explicitly say what kind of damages a landlord can deduct from a tenant’s security deposit. Make sure your itemized list of damages doesn’t violate any local security deposit laws before handing it to your tenant.

What kind of property damage should be included in a landlord's itemized list of damages?

Before charging tenants for property damage, rental owners should be able to distinguish normal wear and tear from damage caused by tenant negligence. Property owners can hold tenants responsible for the following types of damage:

• Major stains or spills.
• Large holes in the walls. 
• Broken door knobs, light fixtures, cabinet handles, or other hardware.
• Major damage to appliances such as refrigerators, stoves, ovens, washers, and dryers.
• Major damage to hardwood, carpet, or tile flooring.
• Major damage caused by pets, including scratches, stains, and odors.
• Window damage, such as broken window panes, cracked blinds, and damaged screens.
• Changes made to the property without permission, such as installing new lighting fixtures or painting walls without permission. 

What kind of property damage shouldn’t be included in an itemized list of damages?

Rental owners aren’t allowed to charge tenants for normal property damage that's bound to occur over time. Minor scuffs, faded paint, and carpet wear are all examples of normal wear and tear. Property owners typically can't hold their tenants liable for the following damages:

• Gradual deterioration of appliances and fixtures due to normal usage.
• Superficial marks on walls, flooring, or furniture that don’t significantly impact aesthetics or functionality.
• Fading of paint on walls due to sunlight exposure or other environmental factors.
• Minor plumbing or electrical issues that are a result of regular usage.
• Routine repair and cleaning bills, such as gutter clearing, lawn care, and pest control.
• Appliance repairs due to regular malfunction.
• Previous property damage that wasn’t caused by the tenant.
• Damage caused by natural disasters or extreme weather.

How to create an itemized list of damages

Now that we’ve covered what should and shouldn’t be included in a landlord-itemized list of damages, let’s discuss how to organize and write one:

Organize all necessary information

Before filling out a landlord-itemized list of damages, you’ll need to gather all relevant documents. This may include the lease agreement, security deposit receipt, property photos, and cost estimates.

Include the tenant’s personal information

Rental owners should include the tenant’s personal information at the very top of the document, either in the center or on the left-hand side. Include your tenant's full name, contact info, and rental address. 

Describe the property’s pre-move-in condition

Directly below the tenant’s personal information should be a brief description of the rental’s condition before the tenant moved in. Be sure to include all details relevant to your tenant’s stay, such as the condition of the walls, floors, appliances, bathrooms, and main areas within the home.

List all potential deductions to the left

On the left-hand side of the document, list all potential damages you'd hold your tenant accountable for, such as floorboard replacement, dishwasher repair, doorknob installation, etc. While you don’t want to overwhelm your tenants with an extensive list of damages, you do want to make it clear what kind of damages you'd deduct from their security deposit.

List corresponding price ranges to the right

On the right-hand side of the document, include how much it would cost to remedy each damage. Include a price range instead of a single number wherever possible, since repair costs tend to fluctuate from one service provider to another. The time of year during which the repair is made can also impact price. 

Mitigating property damage through rental inspections 

One of the best ways to mitigate property damage is to conduct thorough rental inspections before leasing your unit. A move-in inspection helps property owners record the condition of the rental property through clear and unobstructed photos of the property. Once a tenant moves in, it can be difficult to pick up on minor holes in the wall or floor damage, especially if the tenant’s belongings are blocking these areas.

You can also use your move-in checklist to inform your itemized list of damages — both documents will come in handy when the tenant moves out. The checklist will remind you what damages to keep an eye out for and the itemized list of damages will let you know how much of the security deposit amount you should keep. If you notice major property damage, you'd return the tenant's security deposit minus any damages they caused.

Preventing tenant damage with thorough tenant screening

When it comes to property damage, it’s always better to prevent it than to regret it. There’s no way to know for sure whether or not a tenant will take care of your rental, but you can mitigate potential damages by properly vetting them. Screening prospective tenants with a property management tool like Azibo's tenant screening service can help reduce the possibility of property damage and streamline your rental business operations. Furthermore, requiring security deposit insurance can help ensure any damage costs are covered.