Security deposits for your commercial property can range from one month’s rent to the equivalent of a full year of rent, depending on what you’re renting out and who you’re renting that property to.
Collecting the deposit and holding it are the easy parts. California law is pretty loose when it comes to collecting security deposits in the commercial real estate industry. There’s no limit to what you charge, you don’t have to hold the money in an interest-bearing account, and you aren’t prohibited from letting your tenant’s deposit co-mingle with other funds.
But, things can get tricky at the end of a lease term, when tenants have moved out and you need to return the security deposit to those renters. You’ll need to be aware of the deadlines and you’ll have to account for every dollar that you withhold.
Here’s a brief guide for how to handle returning your commercial tenant’s security deposit.
Security Deposit Deadlines for California Commercial Properties
You’ll have to return your tenant’s deposit within 30 days of retaking possession of the space. When your commercial tenants have moved out, make sure you get the keys back as well as any other personal property that goes with the space. Ask your departing tenants for a forwarding address so you can return the deposit and accurately send them any future correspondence. Keep contact information current, after those tenants leave.
Withholding Security Deposit Funds
Sometimes, you’ll need to keep some of your tenant’s security deposit to cover expenses like damage, unpaid rents and other bills, and any other “lawful deductions.”
Documentation will be critically important when you do withhold money from your tenant’s deposit. Make sure you have supportive evidence for why you are charging the tenant’s deposit, and make sure you can show how much it cost to make the necessary repairs. You cannot estimate that a hole in the wall will take $250 to fix. You need to fix that hole and then provide receipts that show the exact amount of the repair.
There might be disputes about what the tenant owes you. Perhaps you’re withholding money from the deposit because the tenant did not pay their share of common area maintenance bills as agreed upon in the lease. If you’re going to make this deduction, you’ll need to show how the lease was violated as well as a detailed and accurate accounting of what was owed.
Send your tenants any of the deposit that remains, and always include your itemized list of charges. If they push back against what you’re returning, prepare to show your documentation and reasoning. You don’t want the matter to go to court because penalties for mistakes can be expensive.
If you have any uncertainty around the security deposit return for your commercial tenants, talk to a local property manager so you can avoid expensive mistakes. We’d be happy to help. Please don’t hesitate to contact us at Preston-Lee Management Company. We’ve been providing property management services in the High Desert for more than 20 years.
