Even the most meticulous landlord may be sued by a tenant over the return of a security deposit. Fortunately, you can take some basic steps to minimize the possibility that you’ll spend hours in court haggling over back rent, cleaning costs, and damage to your rental property.
Know Arizona’s Rules for Returning Deposits
The most important thing you can do is to follow state law scrupulously when you return security deposits. Make sure you meet the Arizona deadline of 14 days for itemizing and returning the tenant’s deposit. The itemization should be in writing and state how the deposit has been applied toward back rent and costs of cleaning and damage repair, together with whatever is left of the deposit. For details on state security deposit rules, including any exemptions that may apply and interest requirements, see Arizona Security Deposit Limits and Deadlines.
Prepare a Move-Out Letter
To reduce the possibility of disputes over security deposits, write a move-out letter to tenants who have given you notice that they are ending the tenancy. Your move-out letter should:
- tell the tenant how you expect the unit to be left (be specific about cleaning things like floors, appliances, and window coverings)
- explain your final inspection procedures
- list the kind of deductions you may legally make (unpaid rent and necessary cleaning and repairs, outside of “ordinary wear and tear”), consulting your state law for specific guidance
- remind the tenant to return keys and provide a forwarding address, and
- state when and how you will send any refund that is due.
Inspect the Rental Unit
After the tenant leaves, you will need to inspect the rental unit to assess what cleaning and damage repair is necessary. Many landlords do this on their own and simply send the tenant an itemized statement with any remaining balance of the deposit, but Arizona law requires that you give tenants the right to be present when you conduct this final inspection. Ideally, you will have used some kind of inventory or Landlord-Tenant Checklist when the tenant moved in so you can compare the condition of the rental at the start and end of the tenancy. In fact, Arizona requires landlords to give new tenants a written statement on the condition of the rental unit at move-in time.
It’s also a good idea to photograph or videotape the rental unit so that you have visual proof of the condition of the rental unit when the tenant moved out. Ideally, you will have also done this when the tenant moved in, so you have before and after photos.
You may want to offer the tenant a second chance at cleaning or fixing any damage you’ve identified in the final inspection before you deduct cleaning charges from the security deposit.
Prepare an Itemized Statement of Deductions
Once the tenant has completely moved out and you’ve inspected the premises, prepare an itemized list of deductions for cleaning, repairs, back rent, or other financial obligations required under your lease or rental agreement. List the item (such as repainting living room wall or five days unpaid rent) and the dollar amount of the deduction. Regarding repairs and damage repair, attach receipts (if you’ve already had the work done) or provide a reasonable cost estimate. You can use Nolo’s Security Deposit Itemization Form for this purpose.
If a Tenant Sues You for the Deposit
No matter how carefully you followed Arizona security deposit laws, and properly account to your tenants for their deposits, you may be sued by a tenant who disagrees with your deductions, or claims that you failed to return the deposit when and how required. Tenants usually sue in small claims court, called Justice of the Peace (or Justice) Court in Arizona, where it’s cheap to file, lawyers aren’t necessary, and disputes typically go before a judge (there are no juries) fairly quickly. You don’t need a lawyer—in fact, they’re not even allowed in some cases. The maximum amount for which a tenant can sue in Arizona Justice of the Peace Court is $3,500.
See the Arizona state court website for more details on small claims lawsuits rules and procedures.
When a Tenant May Sue
Before going to court, your tenant will most likely email, write, or call you demanding that you refund more than you did or fix some other problem involving the deposit. Some states require this type of demand letter before the tenant can begin a small claims case.
Obviously, if you have failed to meet your state deadline for returning the deposit (14 days in Arizona), do what you can to make things right. If not, and the tenant sues you and wins, you may end up losing the entire deposit, plus be assessed hefty penalties or punitive damages if you acted in bad faith when violating state security deposit law.
Settling a Potential Lawsuit
Do your best to stay out of court. Try and working out a reasonable compromise, perhaps with help from a local mediation service. If you reach agreement with your former tenant, sign a settlement agreement in which the tenant agrees to accept payment as full and final satisfaction of your obligation to return the deposit.
If compromise is not possible, your tenant will probably sue you promptly, but may have up to a few years to do so, depending on your state’s statute of limitations (typically, at least one year). So, don’t throw out cleaning bills, receipts for repairs, or photos showing dirt and damage, lest you be caught defenseless.
Preparing for a Small Claims Court Hearing
If the tenant sues you, the court will officially notify you of the date, time, and place of the small claims court hearing. Preparation is key to winning your case in small claims court. You want to make it clear that you knew (and followed) your state security deposit rules. In addition, you’ll want to assemble tangible evidence to take to court (what you need depends on the specifics of your case), such as:
- a copy of your lease or rental agreement, signed by both you and the tenant
- copies of any correspondence, such as a move-out letter, spelling out your rules and policies on cleaning, damage repair, and security deposits
- any move-in and move-out inventories (ideally, signed by both you and the tenant), photos, and/or videos of your rental unit that show the condition of your property at the start and/or end of the tenancy
- the security deposit itemization you sent the tenant, setting out details on all your deductions
- backup to the itemization, such as hours spent by you or repair or cleaning people on the unit, copies of receipts for cleaning and related services, and details regarding any deductions you took for unpaid rent
- one or two witnesses (or written statements from witnesses) who were familiar with your rental unit and will testify that the place was a mess or that certain items were missing or damaged after the tenant moved out, and
- anything else relevant to your case.
Defending Yourself in Court
Small claims courts are informal places, but you may want to consider watching a few cases a few days before your court date, so you know what to expect. Your court website may also provide useful advice. Before you go to court, practice your statement with a friend or relative, so that you can defend yourself in an efficient and convincing way, backed up with relevant evidence.
The trial consists of both you and your tenant explaining your point of view of the dispute, and presenting any evidence or witnesses. This typically takes less than half an hour, and the judge either announces a decision right in the courtroom or mails it within a few days.
If the Tenant’s Deposit Doesn’t Cover Damage and Unpaid Rent
Tenants aren’t the only ones who can use small claims court. If the security deposit doesn’t cover what the tenant owes you for back rent, cleaning, or repairs, you may wish to file a small claims lawsuit against the former tenant.
Remember that you must provide the tenant an itemization by the state deadline, even if you don’t send money—for example, if the tenant has left owing several months’ rent or the entire deposit did not cover necessary cleaning and damage repair.
Start by writing a demand letter to the tenant, asking for the amount of your claim. Include a copy of your written itemization of how you applied the tenant’s security deposit to the charges (this itemization should have requested payment of the balance). Ask for exactly what you want and be sure to give the tenant a deadline. Conclude by stating that you will promptly file a lawsuit in small claims court if you don’t reach an agreement by the deadline.
If your demand letter does not produce results, ask yourself the following questions before going to court:
- Do I have a strong case and substantial evidence to win?
- Can I locate the former tenant?
- Can I collect a judgment if I do win?
If the answer to any of these questions is no, think twice before filing suit.
See the Arizona state court website for more details on small claims lawsuits rules and procedures.
More Information on Small Claims Court and Security Deposits
Nolo’s Small Claims Court & Lawsuits section provides a wide variety of articles on small claims court, including an overview of Arizona small claims rules and procedures. The small claims section of the Nolo site also includes general articles on what to do if you are sued in small claims court, how mediation works in small claims cases, how to file an appeal in a small claims court case, and more. For complete details on the subject, see the Nolo book Everybody’s Guide to Small Claims Court.
The Landlords & Rental Property section of the Nolo site includes dozens of useful articles on property management, rental applications, preparing a lease, repairs, and more.
Nolo’s Every Landlord’s Legal Guide includes detailed advice on itemizing security deposit deductions for unpaid rent, cleaning, and repairs; handling deposits when a tenant files for bankruptcy or is evicted; dealing with deposits from cotenants; drafting a settlement agreement; collecting a court judgment if you sue and win your case, and more.