The most common disagreement we receive call about is between landlords and tenants is over the refund of the tenant’s security deposit after the tenant has moved out of the rental unit. Arizona law therefore specifies procedures that you (as the landlord) must follow for refunding, using, and accounting for tenants’ security deposits.
Arizona law specifically allows you to use a tenant’s security deposit for four purposes:
For unpaid rent;
For cleaning the rental unit when the tenant moves out, but only to make the unit as clean as it was when the tenant first moved in;
For repair of damages, other than normal wear and tear, caused by the tenant or the tenant’s guests; and,
If the lease or rental agreement allows it, for the cost of restoring or replacing furniture, furnishings, or other items of personal property (including keys), other than because of normal wear and tear.
You can withhold from the security deposit only those amounts that are reasonably necessary for these purposes. The security deposit cannot be used for repairing defects that existed in the unit before the tenant moved in, for conditions caused by normal wear and tear during the tenant’s tenancy or previous tenancies, or for cleaning a rental unit that is as clean as it was when the tenant moved in.
Further A.R.S. 33-1321. Defines more about Security deposits as follows:
A. A landlord shall not demand or receive security, however denominated, including, but not limited to, prepaid rent in an amount or value in excess of one and one-half month’s rent. This subsection does not prohibit a tenant from voluntarily paying more than one and one-half month’s rent in advance.
B. The purpose of all nonrefundable fees or deposits shall be stated in writing by the landlord. Any fee or deposit not designated as nonrefundable shall be refundable.
C. With respect to tenants who first occupy the premises or enter into a new written rental agreement after January 1, 1996, upon move in a landlord shall furnish the tenant with a signed copy of the lease, a move-in form for specifying any existing damages to the dwelling unit and written notification to the tenant that the tenant may be present at the move-out inspection. Upon request by the tenant, the landlord shall notify the tenant when the landlord’s move-out inspection will occur. If the tenant is being evicted for a material and irreparable breach and the landlord has reasonable cause to fear violence or intimidation on the part of the tenant, the landlord has no obligation to conduct a joint move-out inspection with the tenant.
D. Upon termination of the tenancy, property or money held by the landlord as prepaid rent and security may be applied to the payment of all rent, and subject to a landlord’s duty to mitigate, all charges as specified in the signed lease agreement, or as provided in this chapter, including the amount of damages which the landlord has suffered by reason of the tenant’s noncompliance with section 33-1341. Within fourteen days, excluding Saturdays, Sundays or other legal holidays, after termination of the tenancy and delivery of possession and demand by the tenant the landlord shall provide the tenant an itemized list of all deductions together with the amount due and payable to the tenant, if any. Unless other arrangements are made in writing by the tenant, the landlord shall mail, by regular mail, to the tenant’s last known place of residence.
E. If the landlord fails to comply with subsection D of this section the tenant may recover the property and money due the tenant together with damages in an amount equal to twice the amount wrongfully withheld.
F. This section does not preclude the landlord or tenant from recovering other damages to which the landlord or tenant may be entitled under this chapter.
G. The holder of the landlord’s interest in the premises at the time of the termination of the tenancy is bound by this section.
In the event you pay a partial refund of the security deposit, your tenant may contact you demanding the balance be paid in full. If you and your tenant cannot agree on a settlement, you can and work out a reasonable compromise that is acceptable to both of you. You also can suggest that the dispute be mediated by a neutral third person or agency, such as Equal Access. Keep in mind that if you cannot resolve the issue of the security deposit, your tenant can sue you in small claims court. You can, however, file a counter-claim against the tenant and assert a right to make deductions from the deposit, for example, for unpaid rent or for damage to the rental that the tenant caused.