Tenant Disposition
- Alan Robson
- 3 days ago
- 3 min read
Easy to Overlook, Essential to Get Right
The tenant disposition (or the final tenant statement) is the final accounting of a tenant’s charges, credits, and security deposit. Unfortunately, it is often overlooked by property owners.
With marketing, repairs, and tenant turnover demanding their attention, many investors fail to handle their previous tenants’ accounting correctly. This can be dangerous, as the State of Michigan imposes strict rules regarding financial reporting at the end of a lease or rental. The tenant disposition is a chance for owners to officially determine what they owe their tenant, what the tenant owes them, and how much (if any) of the security deposit should be returned.
Calculating the Tenant Disposition
Our “How to Handle a Move-Out Inspection” post discussed how to determine what can or cannot be labeled as a tenant charge. It's important to remember the difference between tenant damages and normal wear and tear charges when completing a tenant disposition. Some owners use property management software like Buildium, Appfolio, RentCafe, Yardi, or TenantCloud, where charges and credits are automatically recorded as either damage due to tenant, or normal wear and tear.
It is possible to complete a tenant disposition manually. To do this, investors should start by listing credits such as overpaid rent and the security deposit. Then deductions charged to the tenant can be listed. These charges should include photographs and a complete description of the item or area the charge covers. A good property manager can be helpful during this time, as accurately itemizing charges depends on organizing repair costs from multiple projects clearly. These costs are often a complex mix of estimations for upcoming work, contractor charges for completed repairs, or invoices from work the owner did personally.
Choosing What to Deduct
Itemized deductions from the security deposit are not common. Returning the security deposit to the tenant is standard, and deductions from the deposit should be carefully considered before they are made. Parc Management practices healthy tenant communication and proactive inspections so that damage from tenants is spotted and addressed early. The right property manager ensures that if a deduction must be taken from the security deposit, the cause is well documented and legally defensible.
Parc Management practices healthy tenant communication and proactive inspections so that damage from tenants is spotted and addressed early.
Completing The Final Balance
The final step of the tenant disposition calculations is to determine the difference between credits and the charges. This final balance and the detailed list of deductions and credits attached make up the tenant disposition. If the charges are greater than the funds, your tenant may owe you compensation. If the credits are greater than the charges, any remaining funds from the security deposit should be sent via certified check or wire transfer to the resident’s forwarding address; these funds should be issued at the same time the tenant disposition is sent.
Sending The Tenant Disposition and Security Deposit
In Michigan, owners have 30 days from move-out to send the tenant disposition via email or first-class mail. If the letter is not sent within 30 days of the tenant’s departure, it is assumed that there are no damages or deductions, and the full security deposit must be returned to the tenant. Tenants are required to provide their forwarding address within four days of their official move-out; if they fail to do so, their landlord no longer has to notify the tenant of damages within the 30-day limit. It should be noted that the landlord must still provide a tenant disposition even without a forwarding address, though they are no longer required to deliver it within 30 days.
Any remaining funds from the security deposit should be returned at the same time as the tenant disposition document. When mailing funds to the tenant's forwarding address, keep in mind potential delays from the United States Postal Service (USPS) as they relate to the State of Michigan’s deadlines. Sending funds near holidays or over the weekend can add unintentional delays. Consult with an expert for specific guidance regarding USPS delays, tenant response rules, mandatory formatting, and deduction requirements.
Tenant Move-Out is a Complex Time, But it Can be Easier
Completing the tenant disposition on time relies on multiple factors, from securing the property and finishing the move-out inspection to considering repair and cleaning bids. Parc Management plans, schedules, and oversees every step of the process for a seamless transition. Connect with our team, and learn how we simplify tenant dispositions for investors.
