Security deposits in rentals: Transparency as a fundamental value

By Reyna Echenique

Special for El Inmobiliario

“Give me back my full deposit because there’s no damage” is a phrase frequently heard in real estate offices at the end of rental agreements. Often, what should be a simple formality becomes a tense moment that can taint the experience for everyone involved. Managing security deposits in rental matters, probably one of the most sensitive aspects of our profession, reveals not only our knowledge of current legislation but also the strength of our ethical principles as professionals in the sector.

The true purpose of the deposit

The security deposit has a specific and clear function in our legislation: to protect the landlord against potential damages caused by the tenant during their occupancy of the property. The General Law on Real Estate Rentals establishes a rigorous legal framework for its management, stipulating in Article 19 that these funds must be deposited with the Agricultural Bank, an institution that acts as an impartial third party.

This legal requirement, far from being a simple bureaucratic formality, constitutes a guarantee of transparency that benefits both owners and tenants, establishing clarity in an aspect that, if not handled properly, can become a source of unnecessary conflicts.

The risk of inadequate practices

In my years of experience in the Dominican real estate sector, I have observed with concern how some practices that deviate from the law have become normalized. The unjustified withholding of significant percentages of these deposits without adequate documentation of damages is one of them.

These practices, while they may seem beneficial in the short term for some intermediaries, have a devastating effect on market confidence. Every client who experiences unjustified withholding becomes a potential detractor of the formal real estate system, affecting the overall perception of our sector.

What our legislation establishes

Article 23 of the General Rental Law is clear in establishing that the return of the deposit requires certification from the owner or authorized administrator, and that it can only be retained to "cover the repair costs required by the property due to a cause attributable to the tenant, in case of damage.".

It is important to highlight fundamental aspects that every real estate professional should know:

1. The power to determine withholdings rests exclusively with the owner or their formally authorized administrator.
2. Any deduction must be documented and strictly related to verifiable damage to the property.
3. There is no legal basis for withholdings for items such as "administrative expenses", "inspections" or "closing commissions".
4. Disputes regarding the return must be resolved before the corresponding Justice of the Peace Court (Article 24).

Professional ethics as a differentiator

What distinguishes a professional real estate agent from a mere intermediary? Precisely their adherence to ethical practices that transcend immediate profit. Regarding deposits, there are concrete actions we can implement:

Meticulously document the condition of the property at the beginning of the contract, through detailed inventories and ideally with photographic or video support.

Establish clear procedures for the final inspection, ideally involving both the landlord and the tenant.

Refrain from intervening in the determination of withholdings if you do not have formal authorization from the owner to act as administrator.

Explain transparently to both parties, from the beginning of the contractual relationship, the legal process for the return of the deposit.

Practical advice for all parties

For owners:

1. Register the deposit officially at the Agricultural Bank as required by law, keeping proof of said registration.
2. Conduct detailed and documented inspections before handing over the property, signed by both parties.
3. Clearly state in the contract the conditions for the return of the deposit.
4. At the end of the contract, issue a written certification for the return of the deposit, documenting any withholdings with clear evidence and repair estimates.
5. Consider working exclusively with agents who are members of the Association of Real Estate Agents and Companies (AEI), who are governed by a code of ethics that guarantees professional practices.

For tenants:

1. Demand that the deposit be formally registered at the Agricultural Bank and request the receipt.
2. Thoroughly document the condition of the property at the beginning (dated photographs, signed inventory).
3. Report immediately any pre-existing damage or damage that occurs during your stay.
4. At the end of the contract, request a joint inspection with the owner or their authorized representative.
5. Choose real estate agents accredited by the AEI, whose professional standards include transparency in the management of deposits.

For real estate agents:

1. Thoroughly understand the legislation on deposits and explain it clearly to both parties.
2. Design standardized formats for entry and exit inspections.
3. Facilitate the deposit registration process at the Agricultural Bank.
4. Act as an impartial mediator in case of conflicts, recommending solutions based on evidence and not on perceptions.
5. If you are not accredited by the AEI, consider joining this association to strengthen your professional credentials and access specialized training.

Reputation: the most valuable asset

In an increasingly informed and demanding market, reputation has become the most valuable asset for any real estate professional. It is not built on individually profitable transactions, but on a consistent track record of transparency and professionalism.

International clients, in particular, come from markets where deposit management is highly regulated and supervised. Their expectations regarding transparency in these processes are high, and meeting them represents an opportunity to position ourselves as professionals of international standard.

A commitment to excellence

The transparent handling of security deposits is not merely a legal obligation; it is a statement of professional principles. When we act with absolute clarity in this regard, we send a powerful message about the kind of service we offer across all areas of our practice.

The Association of Real Estate Agents and Companies (AEI) has positioned transparency and professional ethics as fundamental pillars for its members. Working with AEI-accredited agents offers both landlords and tenants an additional layer of security, as they have access to professionals committed to a code of ethics that clearly establishes best practices in managing all aspects of the real estate relationship, including security deposits.

The Dominican real estate sector is maturing rapidly. It is our responsibility, as professionals committed to excellence, to ensure that practices such as deposit management evolve at the same pace as other aspects of the market.

Transparency in the management of deposits is not only a legal requirement, but also a commitment to building a reliable, ethical, and truly professional Dominican real estate sector. Working with AEI members is a smart decision for both landlords and tenants seeking this guarantee of professionalism.

And let us always remember: although our Rental Law No. 4314 may be "old or outdated because it dates back to 1955," it is still the law. And as long as it remains in effect, our commitment as professionals is to know it, respect it, and apply it correctly.

This article is part of the series 'Good Real Estate Practices in the Dominican Republic'.

The author is a real estate lawyer, real estate entrepreneur CEO Echenique Group, Coach, trainer and speaker certified by John Maxwell and Tania Báez, Secretary of the Board of Directors AEI 2024-2026, and a lecturer specializing in the Dominican and international real estate sector.