When tenants move out, repairs and extensive cleaning beyond the usual wear and tear may be required. To mitigate the risk of being stuck with the bill—and to provide an incentive for tenants to be responsible—it can be in your best interest as a landlord or property manager to collect a security deposit at the beginning of your lease term. This deposit also may be handy when a tenant breaks the lease or if they owe unpaid rent after moving out. If you own or manage a rental property, the following overview will help you understand your rights and responsibilities regarding security deposits.
What is a security deposit?
Typically collected at or before the lease signing, a security deposit is a sum of money paid by a tenant to be held by a landlord or property manager in case funds are needed to repair property damage or cover unpaid rent after the tenant moves out. The amount of this deposit is often limited by state law.
Since security deposits are refundable, minus reasonable deductions, you’ll need to understand state requirements and best practices for handling these funds. You’ll also need to keep detailed records so that you’ll be well-prepared in the event of a dispute. Some states even require that you provide a Security Deposit Receipt, so be sure to connect with a lawyer if you have any doubts about the laws that apply to your rental property.
How much is a security deposit?
The amount that you may charge for a security deposit is limited by law in most states, and it ranges from one to three months’ rent depending on where the property is located. Some states also have lower security deposit limits for senior citizens.
While there are 21 states that don’t have deposit limits at all, you may find that a deposit amount within the typical range for your rental market may be most attractive to prospective tenants. If you have questions about security deposits for your property, ask a lawyer.
What about pet deposits?
The rules for pet deposits vary by state. Some states require any additional pet deposit to fall within the general limits for security deposits. Generally speaking, it is within your rights as a landlord to deny rental applicants with pets—however, you may not discriminate against or charge a pet deposit (or pent rent) to owners of service animals. If you do allow pets, you’ll want to understand the regulations in your state. Talk to a lawyer for the most up-to-date guidelines.
How should security deposit funds be stored?
The guidelines vary by state or locality, and in some cases, there are no restrictions. Depending on the location of your property, there may be limitations on what type of account the funds may be stored in, whether or not you need to pay interest to the tenant, and whether deposit funds need to be kept separate from rental income. For guidance on the rules that apply to your property, ask a lawyer.
What can a landlord deduct from a security deposit?
There’s no legally-established line between normal wear and tear and unexpected damage. That said, you may generally deduct from the deposit for the following types of damages and other expenses after the tenant moves out:
- Significant damage – This may include holes in the wall, large stains on the carpet or walls, burn marks, and damaged appliances, windows, or doors
- Cost of cleaning – Tenants are typically responsible for cleaning the rental unit to its pre-move in condition, so cleaning costs associated with excessive trash or dirt usually can be taken out of the deposit
- Unpaid bills or rent – The deposit may cover the cost of any unpaid rent or bills, such as utilities for which the tenant is responsible
- Broken lease – Depending on applicable state laws and the terms of the lease, you may be able to keep some or all of the security deposit if the tenant breaks the lease prior to the move-out date
Whatever you decide to deduct from the deposit must be itemized and documented in a transparent manner. You should also keep the receipts for any repair or cleaning services and either provide copies along with the Security Deposit Return Letter or make them available upon request.
Before the tenant leaves the property, it can also be helpful to do a final walkthrough together and complete a Move Out Inspection Checklist, so that everyone is on the same page about potential deductions.
What happens if a landlord does not return the security deposit on time?
Not all states have time limits for returning the deposit, but those that do range between 14 and 45 days. If you hold the deposit past the deadline or fail to return what is owed to the tenant, you may be required to pay interest or you could be sued in small claims court. A landlord-tenant lawyer can help you understand the requirements for your property.
Make sure your security deposits are legal and effective
Landlords have a lot more to manage than simply sitting back and depositing rent checks. If you understand applicable state laws, document everything, and follow best practices, your rental business should go relatively smoothly. If you have additional legal questions about your rental property, ask a lawyer.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.