Real Estate

How to handle cottage rental security deposits for guests and hosts

Cottage Rental Photo by Shutterstock/Alessandro Cancian

Renting out your cottage comes with a certain level of risk. Whether it’s a hole in the wall, a chewed couch thanks to the guest’s canine companion, or a ruined septic system from someone flushing the wrong items, you can wind up with some expensive repairs. That’s why many hosts introduce security deposits.

How does a security deposit work?

Security deposits are designed to protect hosts against damages caused by guests. In most cases, the host collects a security deposit from the guest before the stay and refunds the money after checkout, assuming the property’s in good shape.

Bill Dobbs, who runs Muskoka Cottages by Marlene, a property management company that handles a number of cottages in Muskoka, says he only uses security deposit funds on major damage, not on minor incidents, such as broken dishes.

“One of the big ones is garbage left behind. We require all our renters to take all their garbage, and if they leave it behind, we’ll take that off their security deposit,” he says.

Security deposits also act as a deterrent against bad behaviour. “I have family that have a separate rental. They don’t collect a deposit, and they tend to get more parties,” Dobbs says.

Typically, the amount collected for a security deposit depends on the size of the property, but Dobbs says he lets the owners of the cottages he manages determine the amount. On average, he’ll collect $3,000 to $3,500 for the security deposit.

How do you collect a security deposit?

Dobbs advertises his rentals through his own booking website, rather than through a rental listing website, claiming the booking giants take too large a percentage of the profit. This means he’s in charge of managing his own security deposits. To collect the security deposit, Dobbs puts a hold on the guest’s credit card throughout the stay. This hold is released seven days after checkout. During that time, he can alert the guest to any damage and charge their credit card.

What are security deposits used for?

Throughout his time managing cottage rentals, Dobbs says he’s never collected a guest’s full security deposit, only the amount necessary to cover the damage. “Last summer, we had a dog chew on a door frame. So, we had a repair guy come out, fix it, and whatever he charged is what we took off the deposit,” he says.

Collecting a security deposit can come with issues—one being unhappy guests. “We’ve had people say that I’m not allowed to take money off their credit card, or that they’ll phone their credit card company and charge me,” Dobbs says. This occurs in instances when guests feel they’re being unfairly charged for damages. That’s why Dobbs clearly outlines the role of the security deposit in the renter’s terms of agreement and only collects for legitimate damages.

But not every host is as diligent as Dobbs. From a guest’s perspective, sending an additional thousand or so dollars on top of the booking fee can leave you feeling vulnerable, especially if the security deposit isn’t sent through a booking platform. If you’re e-transferring the money to the host, you have no recourse for getting that money back.

How do security deposits work with Airbnb and VRBO?

This is an issue that even the major booking platforms grapple with. To help balance the power between guests and hosts, Airbnb introduced Aircover back in May. It’s a free, comprehensive protection policy that ensures guests aren’t cheated out of their rental or have to pay any extra fees. Airbnb doesn’t allow hosts to charge guests a security deposit unless the host manages their listing through Airbnb’s software. The host can then communicate how to submit the deposit through the offline fees feature.

Aircover also covers hosts. Airbnb offers hosts up to $1 million USD in damage protection, including pet damage and deep cleaning. Hosts have 14 days after checkout to file a damage claim against a guest through their resolution centre (hosts are not allowed to request other fees through the resolution centre). The guest has 24 hours to respond to the reimbursement request. If the guest declines or ignores the request, Airbnb will follow up with the guest and host to mediate the situation.

VRBO takes a more traditional route. The booking platform provides hosts with three options: either the host can keep the guest’s credit card on file, having 14 days after checkout to file a damage claim; the host can ask for an upfront refundable security deposit, paid back to the guest 14 days after checkout if no damage claim is filed; or the guest can purchase property damage protection, an optional insurance policy that covers damages caused by the guest.

The property damage protection insurance offers three policies: pay $59 for $1,500 of coverage, $79 for $3,000 of coverage, or $99 for $5,000 of coverage.

As a guest booking through VRBO, if you feel the host has unfairly charged you for damages, you can dispute the charge by contacting customer service. Similar to Airbnb, the booking platform will contact both you and the host, requesting additional documentation to verify the host’s claim.

If used appropriately, security deposits add an extra layer of protection to the rental process. As a guest, just make sure you read the fine print and understand what circumstances cause you to forfeit your security deposit. And, if possible, make sure you send the security deposit to the host through a booking website so that the money can be traced.

As a host, be upfront with the guest about why you collect a security deposit and how much you collect.

“For the most part, I don’t take money off anyone unless there is a real reason to do it,” Dobbs says. “I’m not trying to make money off of the security deposits.”

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