What is a Non-Refundable Deposit?
While a deposit is, by definition, is refundable, the term non-refundable deposit is typically referring to a surcharge or fee on top of the initial security deposit. In some cases, this can include a portion of the security deposit or all of it. The term non-refundable deposit or deposit should not be used for any fees or costs charged to the tenant that the tenant will not be refunded. Charges for cleaning at move out or carpet shampooing at move out, for example, should be labeled as a fee in the lease agreement. If these fees are charged upfront they cannot be charged again at move out.
Last Month’s Rent
The most common non-refundable deposit that we see is the requirement that a tenant pay last month’s rent in advance. Unlike a standard security deposit, the payment of the last month’s rent will not be given back to the tenant, but rather used to pay rent on the last month of the rental term. This has several advantages for a landlord including accruing interest on the deposit during the duration of the tenancy as well as decreasing the chances of a tenant default. It also may mean that a landlord will have to pay tax on it immediately, because it is not in limbo, like a traditional security deposit. It is best practice to save the funds so that you have them at the time they are due. You should not allow a tenant to use the last month’s rent in advance of the last month. It should be reserved for the last month of the tenancy only.
As mentioned, some landlords decide to charge additional fees on top of the last month’s rent and security deposit. These can include various move in charges as well as pet fees. Some of the more common charges and fees are fees for replacing locks, having pets, move out cleaning, move out carpet cleaning, inspections and making spare keys. A landlord needs to know the local rules and laws where their property is located before charging additional fees. In the City of Seattle for example, there are many restrictions and limitations around charging move in fees and deposit amounts.
Keeping a Portion of the Deposit
If at the end of the tenancy you believe that there were damages and or cleaning required that exceeded normal wear and tear, you can deduct the cost of those from the security deposit. In order to do this, you need to send the tenant an itemized list of all the charges along with a check for the remaining amount of their security deposit, within the prescribed timelines. It’s best practice to provide the tenant with the actual vendor invoices and pictures of the damage. This will decrease the chances that they dispute the charges and help keep you out of small claims court.
Are Non-Refundable Deposits Legal
Non-refundable deposits are typically legal in Washington State provided that they are labeled correctly and are reasonable. All fees must also comply with local rules and regulations and be clearly outlined in the lease agreement.
Charging a Non-Refundable Deposit
It is extremely important that the tenant know upfront what their funds are going to. They should know what money is going towards a nonrefundable fee and what is going towards a deposit. This is important for two reasons. The first is that you want them to be fully informed when they make the payment and the second is that you want to make sure you are following all applicable laws. If the deposit is not listed as non-refundable fee in your lease contract, then the tenant may be able to take you to court for reimbursement. By putting removing the term “non-refundable deposit” and replacing it with “non-refundable fee” and then specifically stating what the fee is for in your tenant contract, you avoid this issue. If you aren’t sure how to phrase this properly, a local Bellevue property manager or a real estate lawyer can help you with the specifics.
If want to know more about non-refundable deposits and charging tenants fees contact a reputable Bellevue Property Management company, such as SJA Property Management. We can walk you through the differences and help make sure you are complying.