What is a Non-Refundable Deposit?
While a deposit is, by definition, typically refundable, the term “non-refundable deposit” usually refers to a surcharge or fee charged in addition to the security deposit. This terminology can be confusing and potentially problematic from a legal standpoint.
It’s better practice to call non-refundable charges “fees” rather than “deposits” to avoid confusion and potential legal issues. Charges for services like cleaning, carpet shampooing, or lock changes should be clearly labeled as “fees” in your lease agreement to prevent misunderstandings and comply with current regulations.
Last Month's Rent
The most common form of upfront non-refundable payment is requiring tenants to pay last month’s rent in advance. Tenants should be aware they may have to pay three times their normal monthly rent upfront to move in, covering first month’s rent, last month’s rent, and the security deposit.
Unlike a security deposit, last month’s rent will not be returned to the tenant but rather applied to their final month of tenancy. This arrangement provides several advantages for landlords, including accruing interest during the tenancy duration and reducing the risk of tenant default on the final month while providing cash flow security.
However, there are important considerations to keep in mind. You may need to pay income tax on last month’s rent immediately, as it’s not held in trust like a security deposit. It’s crucial to save these funds separately and never allow tenants to use last month’s rent early. These funds should be reserved exclusively for the final month of tenancy.
Need help structuring your lease agreements properly? Our guide on handling tricky tenant situations covers lease compliance and tenant relations.
Additional Fees and Current Legal Limits
Washington State law now restricts what fees landlords can charge. Other than non-refundable move-in fees, security deposits, pet security deposits, and last month’s rent, landlords are prohibited from charging tenants any one-time fee at the beginning of the tenancy.
If your property is in Seattle, additional limitations apply that are more restrictive than state law. Non-refundable fees can only be charged for cleaning and screening and cannot exceed 10% of one month’s rent. If actual screening costs exceed 10%, you can charge the overage only if it’s consistent with standard Seattle screening costs. Additionally, a landlord cannot charge for cleaning at the end of a rental agreement if they charge for cleaning at the start.
Throughout the state, pet deposits are usually non-refundable and cover potential pet-related damage. All fees must be clearly documented with written receipts, and by law, these fees cannot exceed 10% of the total security deposit, ensuring a reasonable limit on additional charges.
Installment Payment Rights
A significant change in Washington law now requires landlords to accommodate tenant payment preferences. When a tenant requests permission in writing, landlords must allow tenants to pay security deposits, as well as any nonrefundable fees or the last month’s rent, in installments.
Landlords may not impose any fee, charge interest, or otherwise impose a cost on a tenant because they elect to pay in installments. Installment payments are due when rent is due, and all installment schedules must be written and signed by both parties to ensure clarity and compliance.
Keeping a Portion of Security Deposits
If damages exceed normal wear and tear at the end of tenancy, you can deduct costs from the security deposit. Current requirements give you 30 days to return the security deposit or provide a written statement outlining why you need to keep money to repair or clean damage outside of regular wear and tear.
You must provide an itemized list of all charges, and landlords cannot legally withhold any deposit funds without having completed the written checklist process. It’s best practice to include actual vendor invoices and damage photos, as this documentation will decrease the chances that tenants dispute the charges and help keep you out of small claims court. Under Washington law, tenants are entitled to receive one free replacement copy of the condition checklist if they request it.
Learn more about property maintenance and tenant move-out processes in our article about emergency repairs and response times.
Legal Compliance and Best Practices
Non-refundable fees are legal in Washington State when they are properly labeled as “fees” rather than “deposits,” reasonable in amount, compliant with local regulations, and clearly outlined in the lease agreement.
Your lease should always specify what each payment covers, distinguishing between security deposits and fees, which payments are refundable versus non-refundable, what specific services fees cover such as cleaning or screening, and payment schedules if installments are requested by tenants.
Common mistakes to avoid include using “non-refundable deposit” terminology, charging fees beyond state and local limits, double-charging for services like both move-in and move-out cleaning fees, and failing to provide written documentation for all charges and agreements.
Current Market Considerations
With tenants potentially paying three times their monthly rent upfront, it’s more important than ever to clearly communicate all costs before lease signing, offer installment payment options when requested, maintain transparent documentation, and stay current on evolving regulations that affect rental properties.
Ready to ensure your fee structure complies with current laws? Schedule a free consultation with SJA Property Management and we’ll review your lease agreements and help implement compliant fee structures that protect your investment while following all state and local requirements.
For comprehensive property management that handles all legal compliance, tenant relations, and fee collection, explore our full-service Seattle property management services.
