September 23, 2016

Security Deposits

This is one of the biggest bones of contentions between landlord and tenant—what does the deposit cover, when is the landlord entitled to keep all or some of it, how does the tenant get it back.



Security Deposits FAQ
      What is a security deposit?  What does the lease say about security deposits?
      Are deposits for cleaning, pets, parking, or garage door openers considered security deposits and, thus, refundable? Must landlords hold security deposits in a separate bank account apart from other assets?
      Does the landlord have to pay interest on deposits? Under what conditions does the landlord owe a refund of the security deposit?
     What should the tenant do if the landlord does not refund the deposit or refunds what the tenant believes is too little?


What is a security deposit?

It is money to protect the landlord in case the tenant damages the property or fails to pay rent. Usually the tenant pays the security deposit before moving in. The landlord may ask for any amount, but some local laws restrict the deposit to the equivalent of one or two months' rent.



What does the lease say about security deposits?

A preprinted standard lease form will probably contain a paragraph explaining that the tenant has made the deposit to assure compliance with all the terms of the lease. The lease will also set forth the conditions under which the landlord will return the deposit to the tenant. Most leases allow the landlord to keep all or part of the deposit if the tenant owes rent upon moving out or has caused property damage beyond normal wear and tear. Some of it may also be kept to pay for cleaning the premises for the next tenant.



Are deposits for cleaning, pets, parking, or garage door openers considered security deposits and, thus, refundable?

Yes. If the tenant performs the duties set forth in the lease, the landlord does not have a legal reason to keep the money whether the lease calls it a security deposit or not.



Must landlords hold security deposits in a separate bank account apart from other assets?

Not unless the law imposes such a requirement. But if there is such a requirement, a landlord who fails to keep the security deposit separate from other money may owe damages to the tenant.



Does the landlord have to pay interest on deposits?

Most states have statutes requiring the landlord to pay interest on the security deposit. In those states, the landlord cannot avoid paying interest simply because a lease says the deposit does not earn interest.


Some landlords try to get around this by calling the security deposit "prepaid rent." But some laws say prepaid rent earns interest as well.



Under what conditions does the landlord owe a refund of the security deposit?

The landlord will owe the tenant at least a partial refund if the rent was paid in full and the cost of repairs was not beyond normal wear and tear.



What should the tenant do if the landlord does not refund the deposit or refunds what the tenant believes is too little?

The tenant should first try to negotiate with the landlord, perhaps with the help of a mediator. If that fails, the tenant should take the landlord to small claims court. Many states have a special small claims court where persons can sue to collect money owed to them without the need to hire an attorney. These courts are sometimes called pro se courts (Latin for "for oneself") because the tenant, who will be the plaintiff in the lawsuit, is often required to appear without a lawyer. (In most places, the landlord may still hire an attorney.) This type of court is not as intimidating as regular court because the judge does not expect legal sophistication from the tenant.