Every Hawaii landlord and tenant should carefully review the landlord-tenant laws before signing a lease agreement. Landlords have a role to play in complying with the established statute that governs security deposits. Tenants should know their rights and what is expected of them and their landlord to avoid the potential of conflict or to reach a resolution if any disputes arise.
The Purpose of a Security Deposit
A security deposit serves as a safety net for landlords in the event of any unpredictable situation that may lead to financial losses as a result of the actions of a tenant. It may be that the tenant doesn’t adhere to their lease obligations by skipping on the rent or damaging the rental property. A security deposit ensures that a landlord is compensated for losses, but also acts as an incentive for tenants to abide by the lease agreement.
The landlord is allowed to ask for an additional security deposit for a pet animal. A landlord cannot ask for a deposit for an assistance animal that is for a tenant with a disability.
Allowable Security Deposit Charge
Under Hawaii law (Haw. Rev. Stat. §521-44 (b)), a landlord cannot charge a tenant a security deposit amount that is more than one month’s rent.
Returning the Security Deposit
Haw. Rev. Stat. § 521.44 (c) establishes that at the end of the period of the rental agreement, the landlord is required to notify the tenant in writing if he or she intends to withhold any portion of the security deposit and the reason for the withholding. If the tenant wrongfully abandons the rental unit, the landlord doesn’t have to deliver a written notification. The landlord should list each damage and the charge for fixing each issue and return the full or the remaining portion of the security deposit after the deductions are made within 14 days after the termination of the lease. In the absence of an address, tenants have up to 1 year after the termination of the rental agreement to dispute a landlord’s claim to the security deposit.
Failure to Return the Security Deposit
If the landlord fails to provide the tenant with the written notice within fourteen days after the lease end, the landlord forfeits the right to the security deposit or any portion of it (Haw. Rev. Stat. § 521.44 (c)).
Allowable Security Deposit Deductions
Landlords are allowed to make the following deductions from a tenant’s security deposit:
- Accidental or intentional damages
- Unpaid Rent
- Unreturned keys (key fobs, parking cards, garage door openers, and mail box keys)
- Cleaning costs (services, supplies and equipment)
- Damages for abandonment of the rental unit
- Pet animal damage
- Utility service
Last Month’s Rent
The security deposit cannot be used by the tenant as payment of the last month’s rent, unless both landlord and tenant agree in writing to the arrangement. However, the tenant needs to give the landlord a forty-five days’ notice of intent to vacate the rental unit (Haw. Rev. Stat. § 521.44 (2)).
Rental Property Sold
If the original landlord decides to sell or transfer ownership of the rental property, he or she is required to provide the new landlord with an accounting of the security deposits at or before the time of the transfer. The new landlord has 20 days after the transfer to give the tenant a written notice of the amount of the security deposit that is now his or her responsibility (Haw. Rev. Stat. § 521.44 (f)).
How to Get a Full Refund of Security Deposit
When a tenant’s lease ends, a full security deposit may be returned if there is no damage to the rental property, rent is paid in full and all charges in the rental agreement are covered.
Security Deposits and Tax Filing in Hawaii
A security deposit can either be retained by the landlord, all or in part, or refunded to the tenant. It depends on the action taken by the landlord at the end of the tenancy that will impact how the security deposit is treated for tax purposes.
- Accounting for Security Deposits
Security deposits are treated as either assets or liabilities when filing taxes. It is not automatically rental income when first received. Tenants shouldn’t deduct security deposits as expenses when filing their taxes and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant at the end of the tenancy. Security deposits are not income until they become as such.
- Security Deposit Write-off
Usually, landlords cannot deduct security deposits when filing taxes as expenses before they are used for one purpose or another. If a landlord withholds part or all of the security deposit for unpaid rent, then that amount should be included as income for that year when filing taxes. Forfeited deposits should be declared as income on a landlord’s tax return. A deposit is taxable income only if and when a landlord has no obligation to refund the tenant.
“Normal Wear and Tear” vs. Damage in Hawaii
- “Normal wear and tear” is deterioration that occurs from the intended use of the rental property and without negligence, carelessness, accident, misuse, or abuse of the premises or contents by the tenant, members of the household of the tenant, or the invitees or guests of the tenant. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value, normal function of the rental unit. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
The Law on Security Deposits in Hawaii
Hawaii security deposit codes can be found in Haw. Rev. Stat. §521-44.
Tips for Hawaii Landlords on the Right Practices for Security Deposits
- Keep in mind that you can only charge tenants a security deposit in the amount of one month’s rent.
- Return security deposits within 14 days after the termination of the lease with an itemized written statement of any deductions
- Remember that failure to provide the tenant with the written notice within 14 days after the lease termination will result in the landlord’s forfeiture of the security deposit or any portion of it
- Withhold security deposits for any financial losses, damage or other expenses
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant or to settle any other disputes related to the security deposit
Hawaii landlords must comply with the security deposit laws that govern the state. It is equally important for tenants to know how to protect themselves from fraudulent practices and how to remedy the situation. Security deposit laws can be updated at any given time, which makes it important to stay up-to-date on the statute.