Property ManagementTenant Security Deposit

Renting a single-family home in Texas typically comes with a security deposit requirement. This deposit, usually equivalent to a month’s rent, serves as a safeguard against potential property damages beyond normal wear and tear. For homeowners using management companies, the handling of these security deposits often falls under the purview of these firms. However, some owners prefer to hold their tenant’s security deposit, prompting a critical question: Can homeowners hold their own security deposits even when they’re using a management company?

Understanding the Norm

Under the Texas Association of Realtors (TAR) “Leasing and Management Agreement,” Paragraph 4. Section C., there’s a clear directive regarding security deposits. It states:

Security Deposits: (1) During this agreement, Broker will maintain security deposits received from tenants in a trust account and will account to the tenants for the security deposits in accordance with the leases for the Property.

Typically, management companies are entrusted with holding these deposits. The arrangement is not just a matter of trust; it’s a legally outlined responsibility.

The Financial Implications of High-Interest Rates

In an environment of higher interest rates, holding these security deposits can be financially advantageous for management companies, especially those handling numerous properties. This potential for additional income through interest is significant. However, it’s crucial to note that the Texas Real Estate Commission (TREC) rules are stringent. A management contract must explicitly allow the property manager to earn interest income from funds held in trust, such as security deposits. Without this provision, the broker is not permitted to collect interest as income. In such cases, they must either keep the security deposits in a non-interest-bearing account or distribute the interest income to owners proportionally.

Our Management Company’s Stance

Our management company opts to hold security deposits for owners mainly for the convenience and ease of security deposit accounting when tenants move out. The property management software we use necessitates that the deposit be held by the management company for accurate and efficient accounting.

That said, we are open to allowing owners to hold the deposit for their tenants upon request. However, this comes with a caveat: our management company will then be unable to conduct the tenant security deposit accounting on the owner’s behalf. While some owners may prefer to hold the deposit for various reasons, we generally don’t recommend it. The tenant security deposit accounting and tenant move-out process are significant value-added services that we provide to our owners.

To Hold or Not to Hold?

The decision ultimately rests with the property owner. If an owner feels more comfortable holding the security deposit themselves and managing the accounting intricacies at tenant move-out, it is within their rights to request this. However, it’s important to weigh the benefits and conveniences offered by the management company in handling these responsibilities.

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