Move-In and Move-Out Inventories, a Basis for Lawsuit in Home Rentals

In the case of both move-in and move-out, tenants have the lawful right to dissent.  This is not to say that landlords must agree with the tenants about the property condition, but the tenants must be informed by the landlord that they have a right to make dissenting comments for the record.  Of course, any dissent must be put in writing if it is to have legal standing.

Here’s another requirement of the law.  At the time of the move-out inventory, landlords have a duty to inform the tenants, not only of the damages, but also the estimated cost of the damages.  This can get a little tricky because it is sometimes difficult to accurately estimate the cost of such damages.  Most landlords are not construction contractors, so they may not have a good frame of reference for the cost of all damages.  Consequently, the landlord’s fallback is to estimate high.  This is especially important because they have no legal right to deduct money from the security deposit if greater damages are later ascertained after the tenant has been officially notified of the damages on move-out.

For example, if the landlord estimates that carpet replacement in one room will be $300, and a few days later is informed by a carpeting vendor that the actual cost will be $350.  The landlord has no right to take a further deduction from the security deposit to cover that loss.  On the other hand, if the vendor does the work for less than $300, the difference must be refunded to the tenant.

There are two other factors that complicate the landlord’s estimate of the cost of damages:

Beyond ordinary wear and tear:  In Georgia this standard is defined as damages caused by “…negligence, carelessness, accident or abuse of the premises by the tenant or members of his household or their invitees or guests.”  Damages that do not fit this definition cannot be assessed against the tenant’s security deposit.  A comprehensive lease becomes critical in a dispute over this standard.

Depreciation:  How much to depreciate different items is an ongoing debate among most professional property managers and landlords.  Some use the IRS standard.  Some use other life expectancy schedules by reputable third parties such as the International Association of Certified Home Inspectors.  Others have a proprietary standard that they publish for the benefit of their tenants and include as a mutually agreed standard in the lease.  I recommend the latter, but this is really a personal choice.  In any case, this standard should be in writing and then universally and consistently used by the landlord.

So a logical question would then be:  What if landlords discover greater damages after the move-out inventory?  Are they just stuck with what they originally discovered and estimated?  The answer is:  Sort of.  In Georgia, landlords do have recourse against tenants for greater damages later discovered.  They just can’t recover those costs from the tenants’ security deposit.  In such cases, landlords would bill the tenants for the additional damages and hope they pay.  If they do not pay, then landlords would have to resort to legal remedies, and that can get both costly and complex.

But what if the security deposit is insufficient to cover assessed damages upon move-out?  The first step is to clearly demonstrate to the tenants why the estimated charges are reasonable.  That’s really just a negotiation, having much to do with relationship management.  Maybe the tenants will act responsibly and pay what they owe.  In a perfect world that happens.  But as we all should know, this world is not perfect and tenants often try to shirk responsibility for such obligations.  So the remaining two possible remedies are legal solutions.

It’s important to keep in mind that if you want to pursue a legal solution you really need to have your stuff together, and I mean completely!  I often tell my agents that if they have done 99 out of 100 things right, that one thing out of the hundred could create enough of a crease for the tenant to discredit any otherwise justifiable demands by the landlord.  The landlord absolutely cannot be wrong, ever!  So procedurally, the landlord has to get it right.  For the purpose of this discussion, getting it right begins with conducting a proper move-in inventory.  And as we have already established, the justification for damage assessment cannot possibly be any more reliable than the recorded move-in inventory, which established the property condition baseline.  An incomplete or inaccurate move-in inventory may undermine the confidence of any claims later made at the time of move-out.

So, failing the tenants owning up, a landlord could send the file to a third party debt collector.  I like this solution because debt collection is a specific area of the law that when done improperly can lead to lawsuits and a violation of federal law.  While I think we know how to do this, as a third party property manager, we never do.  We let those that do it day-in and day-out handle it for us.  There is, however a pretty steep cost for this service.  Traditionally third party debt collectors charge 40% of any fees they collect.  When considering how unlikely it is that any fees will be collected, it really doesn’t weigh too heavily on my decision.  But I do like knowing that the debt collector is going to file a report with the credit bureaus making sure that the tenant at least feels some pain for their irresponsible behavior.  This solution rarely winds up in court, but it could.  So the landlord’s paperwork needs to be air tight.

Our third option is to file a warrant in small claims court.  This is where landlords need to be spot on procedurally.  Judges usually do not cut landlords much slack.  This is especially so for professional property managers in Smyrna, and justifiably so.  We are supposed to know what we are doing.  This is where having a proper move-in and move-out inventory becomes critical.  In fact, if these are not done correctly and thoroughly, the landlord might just as well not bother going to court and suffering humiliation and embarrassment.   Incidentally, it also helps to have a comprehensive, well written lease and that the landlord has subscribed to all of its terms precisely.

Terri Clair
Managing Broker
3 Options Realty, LLC., CRMC®, The Green Broker
678-397-1282
terri@3OptionsRealty.com

The author of this article is neither an attorney nor an accountant.  Nothing written should be construed as legal advice.  Conclusions conveyed are outcomes based upon practical experience and should not be depended upon to be a common outcome of other similar circumstances. Consult with a professional before making tax or legal decisions.