A landlord can require their tenant to pay a security deposit before lease signing. A security deposit acts as a safety net against a tenant’s negligent action. For example, failing to pay rent, causing repairs to be made, or causing damage to the premises exceeding normal wear and tear.
Now, various states have different rules in regards to how a landlord must handle their tenants’ security deposits. If you are a landlord in Texas, the following is everything you need to know about the state’s security deposit laws.
Security Deposit Limit
Some states have a law that limits how much a landlord can charge as a security deposit while others don’t. Texas belongs to the latter group. As a Texas landlord, you are free to charge whatever amount of security deposit you like.
That being said, most landlords in Texas understand the value of not overcharging their tenant. Overcharging a tenant can mean longer vacancy periods and/or high tenancy turnover rates, among other things.
As such, to ensure that their properties still remain competitive most landlords charge their tenants a security deposit of no more than 2X the monthly rental amount.
Besides the base security deposit, a landlord in Texas is also permitted under the statewide law to charge their tenant an additional pet deposit. This can help cover any necessary repairs from pet damage that exceed normal wear and tear. According to a study from PetFinder, the average pet deposit in Texas ranges anywhere from 40 to 85 percent of the monthly rent.
So, let’s suppose a landlord charges their tenants a monthly rent of $2,000. In such a case, the pet deposit would range anywhere from $800 to $1,700.
However, note that a landlord cannot levy such a deposit on a tenant with a disability who has a service animal. Under Texas law and the Fair Housing Act, disabled people who use service animals are entitled to full and equal access to housing. As such, requiring a disabled tenant to pay extra for their service animal would be considered discrimination.
The security deposit itself is refundable at the end of the lease, minus any allowable deductions. You, as the landlord, can, however, add some nonrefundable fees as well. A good example is redecorating fees.
All non-refundable fees must be clearly indicated in the lease or rental agreement and tagged as nonrefundable.
Monthly Fee in Lieu of Security Deposit
Texas law now permits a landlord to provide tenants with an option to pay a monthly fee instead of paying the security deposit. The new law came into effect on September 1st of 2021.
If, as the landlord, you choose to provide your tenant with this option, you are obligated by law to notify your tenant of the following:
- Their right to pay the deposit in full rather than as a monthly fee.
- Their right to stop further monthly fee payments at any point, instead paying the deposit in full.
- The amount of each option (full security deposit and monthly fee).
What’s more, the decision by both parties to have the deposit paid as a monthly fee must be done in writing.
Security Deposit Receipt
Texas landlords aren’t required to provide their tenants with a receipt upon receiving the security deposit. The law, however, requires that a landlord keeps accurate records of the security deposits you receive.
Security Deposit Deductions
Texas landlords have a right to make deductions to a tenant’s security deposit under certain situations. They are as follows:
Tenants in Texas have an obligation to provide all rent due to their landlord under the lease, whether or not they live in the unit or not. The only exception to this is if both parties, landlord and tenant, choose to terminate the lease at any point during the tenancy or the tenant leaves due to a legally justified reason.
Unpaid Utility Charges
When a bill is registered in the tenant’s name, they are in charge of paying them. Common utilities include electricity, water, gas, garbage, and sewage. If a tenant moves out before clearing these bills, you can make appropriate deductions from their security deposits.
Tenants have an obligation to return their rental premises in the same level of cleanliness that they came in at the start of the tenancy. If they don’t, you may have a right to make repairs and appropriate deductions from their security deposits.
Your tenant is also responsible for returning the rental unit back to its original condition. For example, if the tenant repainted the property, they must repaint the property back to its original paint palette. They also may make repairs. If they don’t, you can use part of their deposit to fix that.
Your tenant is liable for all damage exceeding normal wear and tear. Examples of such damage include large holes in walls, missing or broken bathroom mirrors, and a broken door handle.
Last Month’s Rent
Can your tenant use the deposit as last month’s rent? No! Texas law expressly prohibits this.
Returning a Tenant’s Deposit
First and foremost, as a landlord, you aren’t obligated to return a tenant’s deposit until your tenant has provided you with a forwarding address. Once you have the tenant's forwarding address, you must return part or all of the tenant’s security deposit within 30 days after the tenant moves out.
It is the landlord's obligation to provide the tenant with a written description of the subtractions made. Then, as a landlord, you must give your tenant an itemized list of them within the 30 day period. If the landlord fails to do this, it can be used as a defence of the tenant in small claims court or a justice court. The only exception to doing this is if the tenant owes you rent.
Wrongfully withholding a tenant’s deposit in Texas has repercussions. You’d be assumed to have acted in bad faith and may be legally liable to pay your tenant:
- 3X the amount of the security deposit
- Court and attorney fees
- Sale of Rental Property
So, what must happen if the property or rental unit changes hands? The landlord must transfer the tenants’ deposits to the new owner. The new owner will then take over the landlord responsibility after they issue the tenant written notice informing them of the change of ownership.
In the advance notice, the new owner must state the exact amount of security deposit they received.
As a Texas landlord, it’s important that you familiarize yourself with security deposit law and other landlord-tenant regulations like the legal eviction process, ways to break a lease, squatters rights, Texas Property Code, and rent increase rules. What’s more, because these laws are subject to change it’s important that, as a landlord, you remain up-to-date on them.
If you would like help managing your rentals or staying on top of any changes to the state or federal rental laws contact the experts at Rollingwood Management Inc. today!
Disclaimer: This blog is only meant to be informational and not a substitute for professional legal advice. Also, laws change frequently and they might not be up to date. For expert legal advice, kindly get in touch with a qualified attorney or an experienced property management company.