Security deposits (often called damage deposits) are one of the most important items landlords have to deal with. However, if you believe all you have to do is collect the money, you’re wrong: You must also handle it according to the legislation throughout the tenancy to protect your investment, avoid disputes, and maintain a fair and positive relationship with your tenants.
We’re going to review what Alberta’s Residential Tenancies Act (RTA) says about security deposits, as well as answer some of the most common questions independent landlords have when it comes to handling and deducting from their tenants’ deposits.
A Q&A Guide to Navigating Security Deposits for Alberta Landlords
Security Deposits According to Alberta’s Legislation
In Alberta, a security deposit is a one-time payment, capped at the equivalent of a month’s rent that landlords collect when starting a new tenancy. Landlords are entitled to ask this deposit to use it as security for property damage beyond normal wear and tear, cleaning costs for abnormal use, unpaid rent or other unmet obligations the tenant may have to the landlord, such as legal fees, utilities, late fees, etc.
The landlord must include the main security deposit information in the tenancy agreement, including the amount, interest, and what the landlord is allowed to deduct.
Although security deposits are usually paid in cash, they can also take the form of property or a legal right, upon both the landlord and tenant agreeing.
What’s the Right Way of Handling the Security Deposit?
Landlords must deposit it into an interest-bearing trust account in a bank, treasury branch, credit union or trust company in Alberta within 2 banking days after they collect it from the tenant.
What Happens to the Security Deposit When the Tenancy Ends?
The RTA states that landlords must return the deposit when tenants vacate the property. But before that, they must follow some guidelines:
- Inspect the property before returning the deposit: Before deciding if you need to deduct any amount, you need to compare the property’s condition at move-out with the condition it had at move-in. Both inspections are mandatory to end a tenancy in a fair and positive manner. Without proper inspections, landlords can’t deduct for property damage or cleaning from the security deposit.
- If there are no deductions, the landlord must return the deposit within 10 days after the tenant vacates the property.
If the landlord didn’t conduct the move-in and move-out inspections properly, they won’t be able to deduct any amount for damage or cleaning from the security deposit. However, they may still pursue those costs through other legal means, such as applying to the Residential Tenancy Dispute Resolution Service (RTDRS) for a monetary award, or filing a civil complaint in court. However, landlords still need to prove the damages with evidence like photos and videos of the move-in vs. move-out state of the property, which is why conducting the inspections is so important.
Can Alberta Landlords Increase the Deposit Amount During a Tenancy?
No. Landlords aren’t allowed to increase the security deposit amount at any point of the tenancy, even if the rent price increases. The RTA treats the security deposit as a one-time entry fee to protect the property and cover potential damage, and not as a fluctuating account that changes with the market.
What Can Landlords Deduct?
We already mentioned some of the reasons a landlord is entitled to deduct from the security deposit, but now we’re going to break them down:
- Unpaid Rent and Utilities: A landlord can deduct unpaid rent from the security deposit after the tenancy ends. On the other hand, unpaid utilities can be deducted when the rental agreement makes the tenant responsible for paying them.
- Cleaning Costs: Move-out cleaning costs can be deducted if the lease stated as the tenant’s responsibility to clean the property and leave it in move-in condition, but failed to do so.
However, landlords can’t deduct cleaning costs just because they prefer the property to be cleaner than it was at the beginning of the tenancy. The move-in and move-out inspection reports will determine whether additional cleaning was truly required.
- Damage Caused By the Tenant: Landlords can deduct the reasonable cost of repairing the damage caused by the tenant, their guests or their pets. Examples may include broken doors, large holes in walls, damaged appliances, burns, stains or unauthorized alterations.
Deductions should reflect the actual loss rather than automatically charging the full cost of a new replacement. The item’s age, original condition, expected lifespan, and the influence of normal wear and tear should also be considered.
On the other hand, landlords can spot damage that may seem to be caused by the tenant, but it can be the result of normal wear and tear, and in these circumstances the legislation doesn’t allow deductions. If you need to learn how to distinguish between tenant-caused damage from negligence and wear and tear from daily use, go to this blog.
How Alberta Landlords Can Deduct From the Security Deposit?
- Have Clear Documentation At Hand: Having documentation backing up your claim is essential not only to justify the deduction, but also to calculate a fair amount, explain it to the tenant and protect yourself in case of legal disputes.
- Check the Inspections: As we mentioned, conducting inspections in periods of transition between tenants is key to many aspects of successful property management, including serving as a before and after comparison of the property’s condition with dated photos and videos, helping the landlord to know whether an issue existed before the tenancy, or if it developed while the tenant occupied the property.
- Keep Invoices, Receipts and Contractor Estimates for Cleaning or Repair Work: In case there’s work that has not yet been completed, having a written estimate by your vendor of choice, can help calculate an initial deduction. Once you know the cost, give your tenant an updated statement.
- Itemize Every Deduction Separately: Instead of providing a total charged amount, it’s a practice of transparency to show which amount was used in which service, repair or replacement.
Avoid using flat or arbitrary charges that you can’t support by the tenancy agreement, inspection reports, photos, invoices or other documentation. Unsupported deductions are more difficult to defend if the tenant challenges them.
- Communicate the Deductions With Your Tenant: Do so within the deposit return deadline. If you don’t have the final repair costs yet, provide the tenant with an estimated statement and return any undisputed balance, making sure you return any owning money within 30 days after the end of the tenancy.
Prevent Security Deposit Disputes While Protecting Your Property
The security deposit is a protection tool that helps landlords to reduce financial losses due to the tenant’s neglect of the property, and it serves as an incentive for the tenant to take good care of the property to get their money back once the lease ends. However, landlords need to make sure the most important property management processes – proper inspections, deductions’ documentation and return the remaining deposit within the required deadlines – staying consistent in every tenancy to protect your investment while promoting a fair and professional relationship with your tenants is the key to dealing with security deposits successfully as an independent landlord.
But if you would rather leave the inspections, documentation and day-to-day hassle to the experts, we can help. Contact us to learn how our management services in Calgary can make rental ownership easy.
