AVOIDING DEPOSIT DISPUTES

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1 TIPS, TRENDS, AND HOT TOPICS IN LANDLORD TENANT LAW March 22, 2018 Gonzaga University Barbieri Courtroom AVOIDING DEPOSIT DISPUTES Brian Cameron, Cameron Sutherland, PLLC 421 W. Riverside Ave., Ste Spokane, WA AVOIDING DEPOSIT DISPUTES Tips, Trends, and Hot Topics in Landlord Tenant Law

2 Common Types of Tenancy Deposits Damage Deposit May be applied to toward excessive wear and tear to the premises by tenants or their guests. May not be used to offset nonpayment of rent, fees, or other charges unrelated to wear and tear. Security Deposit May be applied toward losses from lease violations, including nonpayment of rent, utilities, fees, and others. May not be used to offset charges related to wear and tear. Cleaning Deposit (Fee) May be applied toward cleaning and maintenance that may not constitute wear and tear. This type of payment may also take the form of a nonrefundable Cleaning Fee, which must be separately designated and named as such. A non-refundable cleaning fee is paid to and kept by the landlord, regardless of the condition of the premises at moveout, although landlords who collect such fees may not later charge for normal cleaning. RCW (10). Last Month s Rent May only be applied toward rent due for the last month of tenancy. May not be applied toward wear and tear, lease violations and associated fees, or other charges that are outside the scope of last month s rent. Holding Deposit Paid to secure a tenant s right to occupy a unit that has been offered to him or her. Converts to landlord if tenant fails to occupy; converts to deposit or may be applied to rent if tenant proceeds to occupy. Damage, Security, and Cleaning Deposit Problem Solved? AVOIDING DEPOSIT DISPUTES Page 1 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

3 MAJOR DEPOSIT PROVISIONS OF RCW 59.18, et seq..253(1) Holding Deposits re: waiting lists.253(2) Holding Deposits re: requirements It shall be unlawful for a landlord to require a fee or deposit from a prospective tenant for the privilege of being placed on a waiting list to be considered as a tenant for a dwelling unit A landlord who charges a prospective tenant a fee or deposit to hold a dwelling unit or secure that the prospective tenant will move into a dwelling unit, after the dwelling unit has been offered to the prospective tenant, must provide the prospective tenant with a receipt for the fee or deposit, together with a written statement of the conditions, if any, under which the fee or deposit may be retained, immediately upon payment of the fee or deposit..253(3)(a) Holding Deposits re: conversion If the prospective tenant does occupy the dwelling unit, then the landlord must credit the amount of the fee or deposit to the tenant's first month's rent or to the tenant's security deposit..260 Deposit Collection re: written lease terms The lease or rental agreement shall be in writing and shall include the terms and conditions under which the deposit or portion thereof may be withheld by the landlord. AVOIDING DEPOSIT DISPUTES Page 2 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

4 .260 Deposit Collection re: move-in checklist.260 Deposit Collection re: withholding for wear and tear.260 Deposit Collection re: replacement copy.260 Deposit Collection re: LL liability.270 Trust Accounts re: maintenance.270 Trust Accounts re: disclosures No deposit may be collected by a landlord unless the rental agreement is in writing and a written checklist or statement... is provided by the landlord to the tenant at the commencement of the tenancy. The checklist or statement shall be signed and dated by the landlord and the tenant, and the tenant shall be provided with a copy of the signed checklist or statement. No such deposit shall be withheld on account of normal wear and tear resulting from ordinary use of the premises. The tenant has the right to request one free replacement copy of the written checklist. If the landlord collects a deposit without providing a written checklist at the commencement of the tenancy, the landlord is liable to the tenant for the amount of the deposit, and the prevailing party may recover court costs and reasonable attorneys' fees. All moneys paid to the landlord by the tenant as a deposit as security for performance of the tenant's obligations in a lease or rental agreement shall promptly be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord. The landlord shall provide the tenant with a written receipt for the deposit and shall provide written notice of the name and address and location of the depository and any subsequent change thereof [also applies to successor landlords]. AVOIDING DEPOSIT DISPUTES Page 3 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

5 .280(1) Withholding and Refund re: timeline Within twenty-one days after the termination of the rental agreement and vacation of the premises or, if the tenant abandons the premises... within twenty-one days after the landlord learns of the abandonment, the landlord shall give a full and specific statement of the basis for retaining any of the deposit together with the payment of any refund due the tenant under the terms and conditions of the rental agreement..280(1)(a).280(1)(b) Withholding and Refund re: wear and tear Withholding and Refund re: effective upon postmark No portion of any deposit shall be withheld on account of wear resulting from ordinary use of the premises. The landlord complies with this section if the required statement or payment, or both, are delivered to the tenant personally or deposited in the United States mail properly addressed to the tenant's last known address with first-class postage prepaid within the twenty-one days..280(2) Withholding and Refund re: LL liability.280 Withholding and Refund re: limitation (2) If the landlord fails to give such statement together with any refund due the tenant within the time limits specified above he or she shall be liable to the tenant for the full amount of the deposit [statutory damages]... The court may in its discretion award up to two times the amount of the deposit for the intentional refusal of the landlord to give the statement or refund due [exemplary damages]. In any action brought by the tenant to recover the deposit, the prevailing party shall additionally be entitled to the cost of suit or arbitration including a reasonable attorneys' fee [costs and fees]. The landlord is also barred in any action brought by the tenant to recover the deposit from asserting any claim or raising any defense for retaining any of the deposit... AVOIDING DEPOSIT DISPUTES Page 4 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

6 .280 Withholding and Refund re: exception to the limitation.285 Non-refundable Fees v. Refundable Deposits.285 Non-refundable Fees re: written lease terms.285 Non-refundable Fees re: specifically designated... unless the landlord shows that circumstances beyond the landlord's control prevented the landlord from providing the statement within the twenty-one days or that the tenant abandoned the premises [then 21 days from abandonment] No moneys paid to the landlord which are nonrefundable may be designated as a deposit or as part of any deposit. If any moneys are paid to the landlord as a nonrefundable fee, the rental agreement shall be in writing and shall clearly specify that the fee is nonrefundable. If the landlord fails to provide a written rental agreement, the landlord is liable to the tenant for the amount of any fees collected as nonrefundable fees. If the written rental agreement fails to specify that the fee is nonrefundable, the fee must be treated as a refundable deposit under RCW , , and AVOIDING DEPOSIT DISPUTES Page 5 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

7 Sample Disputes AVOIDING DEPOSIT DISPUTES Page 6 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

8 Sample Dispute: Holding Deposits.253(1) Holding Deposits re: waiting lists.253(2) Holding Deposits re: requirements.253(3)(a) Holding Deposits re: conversion It shall be unlawful for a landlord to require a fee or deposit from a prospective tenant for the privilege of being placed on a waiting list to be considered as a tenant for a dwelling unit A landlord who charges a prospective tenant a fee or deposit to hold a dwelling unit or secure that the prospective tenant will move into a dwelling unit, after the dwelling unit has been offered to the prospective tenant, must provide the prospective tenant with a receipt for the fee or deposit, together with a written statement of the conditions, if any, under which the fee or deposit may be retained, immediately upon payment of the fee or deposit. If the prospective tenant does occupy the dwelling unit, then the landlord must credit the amount of the fee or deposit to the tenant's first month's rent or to the tenant's security deposit. Accept holding deposits on a first-come, first served basis. Ensure that tenants have access to proposed leases before they pay a holding deposit. If converted to tenancy deposit upon occupancy, complete checklist per RCW AVOIDING DEPOSIT DISPUTES Page 7 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

9 Sample Dispute: Deposit Collection Deposit Collection re: move-in checklist No deposit may be collected by a landlord unless the rental agreement is in writing and a written checklist or statement... is provided by the landlord to the tenant at the commencement of the tenancy. The checklist or statement shall be signed and dated by the landlord and the tenant, and the tenant shall be provided with a copy of the signed checklist or statement. Generally, landlords and tenants who know what to expect at move-in are much more amenable to resolving deposit disputes at move-out. Ensure that move-in checklist is complete and accurate. Support checklists with photos. Identify items and issues that will be covered by fees (but don t double dip). Provide move-out checklist so landlords and tenants know expectations. Provide lists of typical/standard charges; offer referrals for cleaning services; work with tenants to make unit rent-ready before they move out. AVOIDING DEPOSIT DISPUTES Page 8 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

10 Sample Dispute: Deposit Collection Deposit Collection re: written lease terms The lease or rental agreement shall be in writing and shall include the terms and conditions under which the deposit or portion thereof may be withheld by the landlord. Call the deposit what it is. Up-front fees are almost always better than conditional terms. Deposits are held in trust; RCW governs withholding and conversion. AVOIDING DEPOSIT DISPUTES Page 9 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

11 Sample Dispute: Deposit Collection Deposit Collection re: move-in checklist No deposit may be collected by a landlord unless the rental agreement is in writing and a written checklist or statement... is provided by the landlord to the tenant at the commencement of the tenancy. The checklist or statement shall be signed and dated by the landlord and the tenant, and the tenant shall be provided with a copy of the signed checklist or statement. Checklists are landlords responsibility and a prerequisite to collecting deposits. Include checklist as a standard addendum to lease. Make timely return of checklist and deposit payment a condition of lease. Schedule walk-though together. AVOIDING DEPOSIT DISPUTES Page 10 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

12 Sample Dispute: Trust Accounting Trust Accounts re: maintenance.270 Trust Accounts re: disclosures All moneys paid to the landlord by the tenant as a deposit as security for performance of the tenant's obligations in a lease or rental agreement shall promptly be deposited by the landlord in a trust account, maintained by the landlord for the purpose of holding such security deposits for tenants of the landlord. The landlord shall provide the tenant with a written receipt for the deposit and shall provide written notice of the name and address and location of the depository and any subsequent change thereof [also applies to successor landlords]. Ensure trust account identification is in standard lease provision regarding deposits. Avoid convenience or punitive lease terms that conflict with RCW trust accounting and deposit withholding provisions. AVOIDING DEPOSIT DISPUTES Page 11 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

13 Sample Dispute: Trust Accounting Trust Accounts re: disclosures The landlord shall provide the tenant with a written receipt for the deposit and shall provide written notice of the name and address and location of the depository and any subsequent change thereof [also applies to successor landlords]. Include standard deposit payment receipt with standard lease package. Ensure landlords maintain separate accounts and accounting records for tenancy deposits. AVOIDING DEPOSIT DISPUTES Page 12 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

14 Sample Dispute: Withholding and Refund 1.280(1) Withholding and Refund re: timeline Within twenty-one days after the termination of the rental agreement and vacation of the premises or, if the tenant abandons the premises... within twenty-one days after the landlord learns of the abandonment, the landlord shall give a full and specific statement of the basis for retaining any of the deposit together with the payment of any refund due the tenant under the terms and conditions of the rental agreement. Don t make up timelines. Parties may agree to shorter timelines (e.g., 14 days), but landlords can t impose longer ones (i.e., 21 days as of June 2016). Ensure form-based leases reflect Washington law. Must be postmarked within applicable timeframes, not just dated. RCW (1)(b). Termination may include end-of-lease, unlawful detainer, constructive eviction, and other events. If key-return is specified, ensure that this can happen on termination date, including weekends and holidays. AVOIDING DEPOSIT DISPUTES Page 13 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

15 Sample Dispute: Withholding and Refund 2.280(1) Withholding and Refund re: timeline Within twenty-one days after the termination of the rental agreement and vacation of the premises or, if the tenant abandons the premises... within twenty-one days after the landlord learns of the abandonment, the landlord shall give a full and specific statement of the basis for retaining any of the deposit together with the payment of any refund due the tenant under the terms and conditions of the rental agreement. Preliminary is not full. Estimated is not specific. Applies to line items and amounts. Include receipts whenever possible. AVOIDING DEPOSIT DISPUTES Page 14 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

16 Sample Dispute: Withholding and Refund Withholding and Refund re: limitation.280 Withholding and Refund re: exception to the limitation The landlord is also barred in any action brought by the tenant to recover the deposit from asserting any claim or raising any defense for retaining any of the deposit unless the landlord shows that circumstances beyond the landlord's control prevented the landlord from providing the statement within the twenty-one days or that the tenant abandoned the premises [then 21 days from abandonment] We hold that a landlord may not avail itself of RCW 's exception unless it accounts for any active or passive delay sufficient to show that it made a conscientious attempt to comply with the statutory 14-day notice. Goodeill v. Madison Real Estate, 191 Wn. App. 88, 102 (2015) n.b., RCW was amended in June 2016 to provide a statutory 21-day notice. Timely refund of tenants trust accounts take priority over landlords claims. Many tenants want or need their deposit refunds as soon as possible and are willing to work with landlords to make that happen. Identify potential needs before termination date; consider incentives. Offer tenants option to hire rent-ready services themselves. Get contractor invoices upon completion of work. AVOIDING DEPOSIT DISPUTES Page 15 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

17 Sample Dispute: Withholding and Refund 4.280(1)(a) Withholding and Refund re: wear and tear No portion of any deposit shall be withheld on account of wear resulting from ordinary use of the premises. Normal wear and tear is not defined in RCW Support charges and challenges with photos. Use objective standards (e.g., NAHB Life Expectancies) and depreciation formulas. Tenants may verify by getting third-party bids and price points. Consider functions of various items and features (e.g., drip pans catch drips, door stops stop doors, etc.). Consider negotiation over litigation. AVOIDING DEPOSIT DISPUTES Page 16 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

18 Washington Journal of the Senate, 1973 Ex. 1973, pg Normal wear and tear means deterioration that results from the intended use of a dwelling, including, for the purposes of Subchapters B and D, breakage or malfunction due to age or deteriorated condition, but the term does not include deterioration that results from negligence, carelessness, accident, or abuse of the premises, equipment, or chattels by the tenant, by a member of the tenant s household, or by a guest or invitee of the tenant. Tex. Prop. Code (4). AVOIDING DEPOSIT DISPUTES Page 17 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

19 Sample Dispute: Non-refundable Fees.285 Non-refundable Fees v. Refundable Deposits.285 Non-refundable Fees re: specifically designated No moneys paid to the landlord which are nonrefundable may be designated as a deposit or as part of any deposit. If the written rental agreement fails to specify that the fee is nonrefundable, the fee must be treated as a refundable deposit under RCW , , and Tenant shall pay to Landlord, at signing of this agreement, $ ($ of which is security for the faithful performance by Tenant of the terms of this Lease Agreement and $ carpet cleaning fee). + Tenant further agrees to pay a $300 pet fee, of which $150 is non-refundable, for one named dog approved by landlord. Deposits will be held in escrow at Numerica Credit Union. No interest will be paid on these moneys. The security deposit, or the balance of the security deposit and pet fees, if charges have been made against them, shall be returned to Tenant within two (2) weeks following termination of tenancy. Should the security deposit and refundable pet fee not completely satisfy default or repair costs the tenant agrees to pay to the landlord all additional funds which are billed and will be due and payable within 14 days of notice of such charges. Segregate all deposits in a separate subsection of the lease from all fees. Explain what nonrefundable fees are supposed to cover; clarify that these are in addition to any refundable deposits. Ensure there are no later charges for cleaning that was already paid in fees. Review all fees prior to deposit withholding/refund procedures at termination to ensure these are proper. AVOIDING DEPOSIT DISPUTES Page 18 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

20 NOTES AVOIDING DEPOSIT DISPUTES Page 19 of 21 Tips, Trends, and Hot Topics in Landlord Tenant Law

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