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Transfer Security Deposits When You Are No Longer Managing a Property
Transfer Security Deposits When You Are No Longer Managing a Property

What do you do with a security deposit and other deposits when you no longer manage a property?

Samuel avatar
Written by Samuel
Updated over a week ago

Overview

For a property manager, properties can come and go. Whether it’s because the property you managed was sold or if the owners decide to go with someone else, you need a way of accounting for the deposits you are holding that are going to be transferred to the new property management company or owner.

The Steps

Step 1 - Refund the lease deposits on each lease

We need to remove the lease deposits from each lease. We do this by issuing a refund for them, even though we are technically not giving these back to the tenants.

  1. To refund the deposits on a lease, click on Rentals on the main menu and then click on Properties.

  2. Find the Property you will no longer be managing and click on it.

  3. On the overview page, click the Leases tab to view all the active leases currently on the property.

  4. Click the first Lease and then click the Deposits tab.

  5. Click the Refund Deposit button and issue a refund to your tenant using the account where the deposits are being held. You can set the Payment Method to Other since you aren't actually giving the refund to the tenant. In the Description and Memo field, you can label this "Transfer to New PM Company."

  6. Click Save to finish.

  7. Repeat these steps for each lease on the property.

Step 2 - Create a bank deposit for the refunded lease deposits

Next, we need to create a new bank deposit to offset the refunds we issued to the tenants since the tenants aren't getting those deposits back. The lease deposits are instead being transferred to the new property management company.

  1. To create a bank deposit for those lease deposits, Click the + Create New button at the top left-hand corner. Then click Bank Deposit under the Other Transactions section.

  2. Click Bank Deposit under the Other Transaction category.

  3. On the new Bank Deposit window, for Deposit Account, select where you are currently holding deposits, either your Escrow account or your Operating account for example.

  4. Use the Other Deposits section and fill in these fields:

    • Property - Select the property that originally had all the deposits.

    • Account - Select Security Deposit Liability here.

    • Description - You can label this Transfer to New PM Company.

    • Amount - Enter the amount of the original deposit

    • Add Memo - You can label this Transfer to New PM Company.

    • You can disregard the other fields as they won’t be needed.

  5. Click Save to complete this step.

Step 3 - Add the new property management company as a vendor

Next, create a new vendor for the property management company to which you are transferring the lease deposits. You can do this by clicking the + Create New button at the top left-hand corner and then selecting Vendors under the People section.

Step 4 - Create an expense to transfer the lease deposits to the new property management company

  1. The next step is to create a new expense to transfer the lease deposits to the new property management company. Click the + Create New button at the top left-hand corner and then click Check under the Other Transactions section.

  2. On the New Expense window, fill out these fields:

    • Select Payee: Select the new property management company.

    • Pay From Account: Select the bank account the deposit is being held in.

    • Payment Method: Select the method you will be using to give the funds to the new property management company.

    • Category: Use liability > security deposit.

    • Property: Choose the property associated with that deposit.

    • Memo: You can enter this as "Transfer to New PM Company."

    • Amount: Enter the amount of the transfer.

  3. Click Save to complete the process.

When you’re done, the total liability for the property should now be reduced by the amount transferred to the new property management company. You would repeat the process several times if there are multiple leases on this property with deposits that you need to transfer. Eventually, the balance should become $0. You can confirm this by checking your Balance Sheet.

When you reconcile your bank account, you’ll need to include both the refund and other transactions in your bank reconciliation. When the reconciliation is complete, leave a note in case of any future audits.

Disclaimer

The information provided is not offered by a licensed accountant, should not be considered accounting, financial, or legal advice, and is provided (and intended) for general informational purposes only. Do not rely on the information provided; rather, please verify applicable accounting laws and regulations independently. This information should not be considered a substitute for professional advice and does not offer Generally Accepted Accounting Principles (GAAP). The author and publisher are not liable for any damages or losses resulting from reliance on this information.

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