A common mistake some new landlords make is to drop security deposits collected from tenants into their own personal chequing accounts. However, it is not a good idea to have money belonging to tenants mixed up with your own, unless and until it is being applied to cover unpaid rent or damage beyond normal wear and tear.

All states have strict rules covering security deposits, especially if you are a landlord in the Big Apple, which means you could be asking for trouble, since New York rules are some of the strictest in the entire country. New York state laws require landlords to hold security deposits in trust for their tenants. In other words, it means keeping tenant money safely segregated from your personal funds. The best thing to do is to open another bank account for keeping your tenants security deposits in. All you require is one separate account and not one for each tenant’s security deposit.

Don’t make the mistake of mixing tenant security deposit money with your own personal or business funds, as you run the risk of forfeiting the deposits. As well, desist from borrowing a tenant’s security deposit when you are desperately in need of funds, including pledging them, in order to qualify for the loan.

New York landlords should also be aware of a couple of rules governing security deposits, which are dependent on the size of their rental property, including whether it is rent regulated or not.

1. Security deposits collected from tenants of rent-stabilised and rent-controlled units must be deposited in a New York bank.
2. If, your building has six or more units, then again a New York bank account is required for keeping the tenants security deposits in. The same rule applies even if you own less than six units in the building, as the size of the building is the determining factor not the number of units.

That apart, landlords should make themselves cognisant with all rules and regulations before drafting tenancy leases or rental agreements. They must also take all necessary precautions, such as, tenant screenings, background checks on prospective tenants, including making certain all rental lease clauses are adhered to, as insurance for a litigation free landlord / tenant relationship. A simple click of the mouse and any landlord or property manager can visit www.e-renter.com for their tenant screening and background check services. www.e-renter.com, the best tenant screening agency in America!

Q.1. What is a security deposit?

Ans. It is money deposited with the landlord to protect him / her, in case a tenant damages the property or fails to pay rent, and is usually paid before a tenant moves in. A landlord can ask for any amount, but certain local laws restrict the deposit to the equivalent of a couple of months rent.

Q. 2. Is security money deposited for pets, cleaning, garage door openers, parking refundable?

Ans. Yes, as long as a tenant fulfils all lease terms and conditions relating to the deposit. A landlord is not legally entitled to keep the money, whether the lease terms it as security deposit or not.

Q.3. Is a landlord required to hold security deposit accounts separately from his / her other assets?

Ans. Only if the law demands it and any landlord who fails to keep tenant security deposits in a separate bank account is liable to pay damages to his / her tenants.

Q. 4. What are the circumstances under which a landlord owes a refund of the security deposit?

Ans. A full or partial refund is owed to the tenant, if rent has been paid in full, including cost of repairs beyond normal wear and tear.

Q. 5. What do standard leases say about security deposits?

Ans. They set forth conditions that require landlords to return security deposit amounts to tenants, however, most leases permit landlords to keep the entire amount or a part of the deposit, in the eventuality a tenant owes rent when moving out, or in case he / she has caused property damage beyond normal wear and tear. A part of it may also be kept to pay for cleaning the rental premises, if the tenant has not adhered to the cleaning clause in the lease.

Q. 6. What can a tenant do, in case the landlord refuses to refund the deposit or refunds too little?

Ans. It is important for the tenant to first negotiate with the landlord, may be through a mediator. Failing that, the matter can be pursued in a small claims court, where people can sue to collect money owed them, without hiring a lawyer.

Both landlord and tenant should be aware that in most states, there are statutes that require landlords to pay interest on security deposits held by them, even though the lease does not say anything about paying interest on security deposits. Some landlords try and get around the law by calling security deposits ‘pre-paid rent’. However, there are laws that explicitly specify even pre-paid rent earns interest.

Ques. Are there any particular rules for security deposits returns?
Ans. Landlords are permitted deductions from tenant security deposits for unpaid rent, or for repairing any tenant caused damages, including cleaning costs, when a tenant moves out without cleaning the place or getting the carpet shampooed. Most of the states require a written itemized account of deductions for unpaid rent, damage repairs, and necessary cleaning exceeding normal wear and tear, together with any payment made for the security deposit balance.

There are varying deadlines state to state, however, as a rule, landlords are allowed a set time limit to return deposits, usually 14 to 30-days after the tenant moves out, either voluntarily or has been evicted.

Ques. What is outcome of a tenant breaking his / her rental lease?
Ans. The general rule is that a rental lease binds the tenant for its duration, unless and until the landlord breaks the law or violates the terms of the lease, such as, failing to make necessary repairs, or not complying with an important lease clause. Certain states have laws in place that allow tenants to break a lease due to health problems or job relocations requiring a permanent move. As well, federal laws, including many similar state laws allow tenants entering active military service, or related government positions to terminate rental leases early, with impunity.

A tenant breaking a lease without reasonable cause is held responsible for the rent due under the remaining lease term. Most states, rather than charging lease breaking tenants with payment of total rent remaining under the lease, require the landlord to make all reasonable efforts to find a new tenant, regardless of the tenant’s reason for leaving.

Ques. When is it considered legal for a landlord to terminate the lease and end the tenancy?
Ans. When a landlord terminates a lease due to significant violation of lease terms by a tenant, he / she is within the rule of the law to do so. If, a tenant keeps a dog or a cat in violation of his / her rental lease that contains a no pets clause, a landlord is within his / her rights to legally terminate the lease. As well, the landlord can legally break the tenant’s lease, if the latter is a habitual late rent payer, or does not pay rent at all, or substantially damages the rental property, or engages in illegal activities on or near the premises e.g. sells drugs, etc.

Before breaking the lease, the landlord is required to notify the tenant in writing that his / her tenancy has been terminated. There are detailed state law requirements regarding how a landlord must write and deliver (serve) a termination notice. The termination notice should clearly state why the tenancy is being terminated and warn the tenant the premises must be vacated; otherwise he / she will have to face an eviction lawsuit. Or, the notice may warn the tenant that to rectify the lease violations i.e. pay the rent, or remove the pet.

If, the problem is fixed or the tenant moves out, there is not need to sue. Non-compliance with the termination notice is when a landlord can go ahead and file a lawsuit for evicting the tenant.

Typically, landlords are permitted to charge tenants for any cleaning or repairs that are necessary to restore the rental unit to pre-tenancy conditions. However, a tenant’s security deposit cannot be used to cover the costs of ordinary wear and tear that may occur during a tenant’s occupancy. Following are some examples of wear and tear versus damage or filthy rental premises:

Ordinary Wear & Tear That Is A Landlord’s Responsibility

1. Sun faded curtains.
2. Shower or bath water stained linoleum.
3. Nicked or minor marked wall paint.
4. Wall dent, result of being constantly bumped by a door handle.
5. Spotted or moderately dirty carpet.
6. Tack or nail holed walls.
7. A rug worn thin due to constant use.
8. A refrigerator door’s worn gaskets.
9. Faded wall paint.
10. Ingrained dirt soiled hardwood floors that have lost their finish and been worn down to bare wood.
11. Warped cabinet doors that don’t or won’t close.
12. Stained porcelain fixtures without their protective coating.
13. Moderately dirty mini-blinds.
14. De-silvering (spotted) bathroom mirror.
15. Clothes dryer thermostat that has given out and now delivers cold instead of hot air.
16. Mineral deposit clogged toilet jets that flush inadequately, as a result.

Tenant Caused Damage Or Filthy Mess

1. Curtains or carpets with cigarette burns.
2. Broken bathroom tiles.
3. Prominently marked or hole-pitted walls.
4. Hanging doors i.e. off their hinges.
5. Ripped or pet urine stained carpet.
6. Picture holes or gouged walls requiring extensive patching, including re-painting.
7. Stained rugs.
8. Broken refrigerator shelves.
9. Water damaged walls.
10. Water stained wooden floors and windowsills.
11. Icky sticky cabinets and interiors.
12. Grime-coated bathtub and toilet.
13. Missing mini-blinds.
14. Lipstick and make-up encrusted mirrors.
15. Non-functional dryers.
16. Clogged toilets that do not flush properly due to a thrown in diaper or tampon.

The above gives a pretty comprehensive picture to both landlord and tenant, as to what can and cannot be claimed as cleaning or repair costs from security deposits. It is up to both to ensure that they keep their part of the bargain.

However, to avoid expensive litigation, landlords should screen prospective tenants thoroughly, weeding out undesirable elements with past evictions or criminal pasts. Visit www.e-renter.com for tenant screening and background check services.

Ques. Are security deposits refundable or can they be retained for cleaning or damage repair costs for rental properties?

Ans. Security deposits are refundable amounts, as long as a tenant carries out his / her responsibilities that have been set out in their lease agreement. A landlord is not legally allowed to keep security deposit amounts, even if the lease calls it by some other name i.e. pre-paid rent.

Ques. Are landlords required to hold security deposit amounts in a separate bank account apart from their other assets?

Ans. Not really, landlords are not required to keep security deposit amounts in separate accounts. However, if the state law imposes such a restriction, any landlord who fails to comply by keeping security deposit amounts separately will be held liable for paying damages to his / her tenants.

Ques. Are landlords required to pay interest, as well, on security deposit refunds?

Ans. Most state statutes require landlords to pay interest on security deposits, despite the fact it may not have been stipulated in the lease terms. If, state laws state interest has to be paid on security deposit amounts, then landlords must comply or else be held guilty. Some may try to get around this statute by calling security deposit amounts ‘prepaid rent’. Yet, certain state laws affirm, even pre-paid rent earns interest.

After, Chicago City passed a local landlord-tenant ordinance requiring interest to be paid on security deposit amounts, some unscrupulous landlords converted security deposits to pre-paid rent for the last month of a rental agreement. This compelled City Council to amend the ordinance, stipulating interest has also to be paid on pre-paid rent.

Ques. What conditions require a landlord to refund security deposit amounts?

Ans. A landlord owes a tenant at least a partial refund, as long as the last month’s rent has been paid in full, and he / she has not incurred any repair or cleaning costs beyond normal wear and tear.

Ques. What do most leases say on the subject of security deposits?

Ans. Pre-printed standard lease forms will typically contain a paragraph explaining that the security deposit amount is meant to assure tenant compliance with all the lease terms. As well, it sets forth conditions under which a landlord will return a tenant’s security deposit amount. Most leases will allow a landlord to keep all or part of it, in case a tenant moves out owing rent, or causes property damage beyond normal wear and tear. It may also be kept for paying for the cleaning costs of rental premises, if a tenant moves out leaving a mess behind.

Ques. What exactly is a security deposit?

Ans. It is money, usually a month or two’s rent, a tenant deposits with the landlord on moving in. It is meant to protect a landlord, in the event a tenant damages the property or fails to pay rent. While, a landlord may ask for any amount, certain local laws restrict the deposit to the equivalent of a couple of month’s rent.

Ques. What can a tenant do, if a landlord refuses to refund the deposit or refunds only a portion of it?

Ans. The best thing is for the tenant to first try and negotiate with the landlord; perhaps with the help of a mediator, failing which, the tenant can take the landlord to the small claims court.

However, to avoid expensive litigation, landlords should screen prospective tenants thoroughly, weeding out undesirable elements with past evictions or criminal pasts. Visit www.e-renter.com for tenant screening and background check services.

As a rule, every landlord will take a security deposit to ensure payment of rent, as well as, to see to it tenant responsibilities are carried out as laid down in the lease i.e. any damage caused to the property by the tenant will be paid for by deducting the repair cost from the security deposit amount. While, every state has different laws governing security deposits, the following is simply a general overview.

1. Last Month’s Rental Payment Or Security DepositPlease understand last month’s rent and security deposit are not one and the same thing. Paying rent at the first of the month constitutes pre-payment to the landlord for the month’s tenancy. The security deposit amount is usually one month’s rent, as certain states stipulate no more than one month’s equivalent can be kept as security deposit to cover for tenant caused damage to the property. If a landlord raises the rent later on, he / she can ask the tenant to increase the security deposit as well, in keeping with the increased rent. However, neither a landlord nor a tenant can use the security deposit in lieu of unpaid rent, unless he / she has the other’s consent.
2. Security Deposits – Receipts and Interest AccrualsOn receipt of the security deposit amount or the month’s rental payment, a landlord is legally bound to issue a receipt confirming the payment. If, he or she does not, a tenant can insist on its issuance. Many states have made it compulsory for a landlord to issue receipts to tenants containing the following information:
   1. Amount paid,
   2. Payment date,
   3. Reason for payment,
   4. Receiver’s name,
   5. If an agent is collecting the rent, the name of the landlord for whom it is being collected should be on the receipt, as well, and
   6. Landlord or agent’s signature.

   When a landlord has taken charge of the security deposit amount, he / she must inform the tenant, in which bank and in which account, including the percentage of interest being paid on it. On his / her part, a tenant terminating a tenancy should provide the landlord with a forwarding address, where the security deposit amount plus interest can be sent.

   Since, security deposits are taken as a precaution against any damage a tenant may cause to the rental property, it is in a tenant’s interest to take stock of the condition of the rental premises, along with the landlord. Certain states have made a signed statement of the condition of the premises a necessary prerequisite. The statement should contain a comprehensive list of existing damages.

3. Security Deposit – Returns and DeductionsA security deposit must be returned within a fixed time (typically, 30-days) after termination of a tenancy. However, the landlord is entitled to deduct any unpaid rent, and any reasonable amount necessary to repair any tenant-caused damage to the property. As well, damage caused by pets can also be deducted, though a tenant does not have to pay for reasonable wear and tear associated with normal use. However, it is a tenant’s responsibility to maintain and keep the rental premises clean and litter free.

   In case of damaged premises, the law states a landlord must within 30-days after a tenancy ends, typically provide the tenant with the following documents:

   1. A detailed list itemising the nature and extent of damage caused, and necessary repairs required to make the property rentable again, and
   2. He / she must also provide written evidence, such as, estimates, bills, invoices, or receipts, indicating the actual or estimated cost of these repairs.

   The balance of the security deposit (if any) must be returned after all proper deductions have been carried out. If a landlord fails to return the security deposit (or balance after lawful deductions) with accrued interest, within the prescribed time period after a tenancy has been terminated, or fails to furnish the tenant with an itemised list of damages, if deductions have been made for damages, the state law permits the tenant to sue the landlord. If this happens, it can turn out be fairly expensive for the landlord, as many state statutes provide for damages triple the security deposit amount that has been withheld.

   Typically, state courts make some provision for easy resolution of security deposit disputes, such as, in small claims, conciliation, or landlord / tenant courts.

However, to avoid expensive litigation, landlords should screen prospective tenants thoroughly, weeding out undesirable elements with past evictions or criminal pasts. Visit www.e-renter.com for tenant screening and background check services.

Ques. How much security deposit is a landlord allowed to charge a tenant?
Ans. It is permissible in all states to allow landlords to collect security deposit from a tenant at the time he / she moves in. A security deposit is a necessary requirement as landlords use it to cover unpaid rent, or for repairing or cleaning up a tenant’s messy house-keeping, after he / she has moved out. States limit the security amount landlords can charge, which is usually not more than a month or two worth of rent.

State laws state it is a requisite for landlords to put the deposit in a separate account, which is to be paid back to tenants plus interest.

Ques. How can a tenant protect his / her security deposit?
Ans. A tenant does not always get back the full security deposit amount plus interest, as more than a few landlords withhold all or part of a tenant’s security deposit on a tenant’s departure as a matter of course, to pay for house cleaning, carpet cleaning, and perhaps repainting. However, unless absolutely necessary due to a tenant’s mis-adventurous use of the rental, it is not legal for a landlord to make such deductions. He / she cannot use security deposits for ordinary wear and tear that occurs during a tenant’s occupancy.

Ques. Is there a grace period for late rent before landlords can begin charging late fees, and are they legal?
Ans. Unless, a lease or rental agreement specifies otherwise, most states do not have a legally recognised grace period for late rent. It means, if a tenant has not paid rent on time, a landlord can usually terminate the tenancy with a ‘pay or quit’ notice a day after its due date. However, some leases and rental agreements do provide a five-day grace period for late rent.

As well, there are some landlords, who charge fees for late payment of rent, or for bounced checks, and if reasonable, these fees are usually legal. Laws relating to late fees can be found in a state’s landlord / tenant statutes.

Ques. Is it a legal requirement to pay rent on the first of the month?
Ans. Custom demands rent to be paid monthly, in advance, often, on the first day of the month. However, it is perfectly legal for a landlord to ask for rent to be paid at different intervals or on a different day of the month.

Ques. When can a landlord increase the monthly rent?
Ans. A landlord can raise the rent, of course, subject to rent control laws with a proper written notice, usually 30-days, if a tenant has a month-to-month rental arrangement.

In the case of a fixed-term lease, the rent cannot be raised during the lease term, unless the increase is specifically called for in the lease, or unless the tenant agrees. When a lease expires, the landlord may raise the rent, again subject to rent control laws, if any.

Ques. How do rent control laws work?
Ans. Only five states i.e. California, Columbia, Maryland, New Jersey, and New York -have rent control laws, limiting the amount of rent landlords may charge.

Rent control ordinances (also called rent stabilisation or maximum rent regulation) limit rental increases. These rent control laws also require landlords to have a legally valid reason for wishing to terminate a tenancy, e.g. if the tenant does not pay rent, or if the landlord wants the rental property for personal use.

However, to avoid expensive litigation, landlords should as a rule screen prospective tenants and employees thoroughly, weeding out undesirable elements with past evictions or criminal pasts. Visit www.e-renter.com for tenant screening and background check services.

Every landlord charges a security deposit from tenants of his / her rental property, in order to protect it, if a tenant fails to adhere to the lease agreement. Used, usually, to cover any damages caused by a tenant to the landlord’s property, such as, broken doors or windows, paying for the cleaning and for junk removal after a tenant has vacated security deposits are used for such, or any other destruction to the property. As well, it can be used if a tenant walks out without giving the landlord 30-days notice or without paying his / her last month’s rent.

However, most landlords have not familiarised themselves as to the legal handling of security deposits, or even how much should be charged. A number of laws govern security deposits, including whether interest is to be accrued for the period the security deposit is held by the landlord. If a landlord does not wish to walk on the wrong side of the law, it is important he / she brushes up on local, state and federal laws surrounding security deposits, so as to avoid legal hassles.

A landlord’s first task is to determine the amount to be charged for them. It should be enough to cover any damage to his / her rental property, at the same time it should not exceed the limits set by state law. There are certain states that do not allow more than one-and-a-half month’s rent to be charged as security deposit. If as a landlord, you feel this amount may not cover potential damages, it is a good idea to insert a clause in the lease agreement that states the tenant will be held liable should excess damages occur.

Once the amount to be charged as security deposit has been decided, it should be incorporated in the written lease agreement, including a separate clause, stating it will cover tenant damages to the property beyond normal wear and tear, as well as, should a tenant elect to terminate the rental lease before its due date. This ensures tenants are well informed as to what is expected of them to get back a full refund of their security deposit.

At the same time, landlords should bear in mind security deposits are not to be confused with pet deposits. The latter are non-refundable and are used for cleaning or repair of damages caused by a pet. Any rental property allowing pets will also charge a pet deposit, a difference that should be specified in the rental agreement to reduce confusion and keep a tenant informed, as to what will occur when the lease ends.

Landlords should also be aware, if the security deposit is not used while the lease is in effect, it does not have to be claimed as income on tax returns.

On the whole, it is quite possible a landlord may avoid any tenant trashing of his / her property due to careful tenant screening and background checks. (Visit www.e-renter.com for tenant screening and background check services). Even so, a security deposit provides peace of mind, in case a problem tenant causes more damage than the deposit covers. At least, security deposits help a landlord in repairing some of the damage caused by rampaging tenants!

Not an unusual situation, many tenants faced with a financial crunch will often ask their landlord to use the security deposit as rent for the month. Some may even feel that if they are short of funds and in any case are moving out, the landlord will just have to use their security deposit for rent.

No doubt, this catches many landlords off guard and leaves them absolutely flabbergasted. Well, if you are in the rental property business, you should be aware that this is a common excuse tenants come up with to avoid paying rent, and you should be prepared for situations, such as this one.

One way to avoid this type of situation is to go over the lease carefully with prospective tenants at the lease signing. Read the security deposit clause with them carefully, explaining why the security deposit cannot be used in lieu of rent. Stress on and make the following points clear to the tenants:

1. Security will be kept in a special escrow account for the entire lease or tenancy term.
2. Security deposits cannot be used by landlords for any reason other than physical or financial damage resulting from the tenant’s failure to comply with the rental lease signed by them.
3. Inform them failure to pay rent will result in eviction which in turn will have an adverse effect on the tenant’s credit rating.
4. Make it clear, any delinquencies in rent payment will be reported to credit bureaus.
5. Go over the security deposit clause which clearly states that it is not to be used as rent, and if the tenant intends to do so, they will be breaching the contract, which could lead to legal action.
6. Lastly, in the event of defaulting on rent payment, remind tenants of the consequences of such an action, made abundantly clear in their rental lease i.e. the tenant will have to pay a late fee, in addition to rent collection costs, and lawyer fees if taken to court, along with a bad credit report.

This may or may not help to get your tenant to toe the line, but a warning letter from your lawyer will soon have them paying up. As a landlord, you will find tenants have a lot of tricks up their sleeve trying to hoodwink you, but as long as you have a water-tight lease, you can get them each time. The lease is the most important clue to being a successful landlord; the rest can more or less be dealt with, if your rental lease covers every tenant eventuality.

Tenants have been screened, selected, with keys handed over; this is when the landlord asks his new tenant for the first month’s rent and a security deposit. According to American law he is entitled to it, and like the tenant, has to adhere to certain rules and guidelines that govern the issue.

1. What is a Security Deposit?

It is a sum of money equivalent to one month’s rent and given to the landlord, in addition to rent paid for hiring his / her residential premises. This sum is held as security by the landlord to ensure the tenant understands and performs all obligations and liabilities of returning the rental property, in the exact same condition as received.

2. Is a Landlord required to provide a receipt for a security deposit?
The law states, a landlord is required to give a written receipt to the tenant, stating deposit amount, payment date, and the premises to which it applies. Not to be considered an asset, the security deposit is to be held in trust by the landlord.

3. Is a landlord required to pay interest on a security deposit?
When refunding a tenant’s security deposit, a landlord is liable to pay interest for the duration he held it in trust. As for the rate of interest to be applied to the security deposit, it is set by the Security Deposit Interest Regulations under the Residential Tenancies Act.

4. What if a tenant is late in paying rent?

A tenant forfeits interest on his / her security deposit for any month they are more than ten days late in paying their rent, except when the rental agreement already contains a late charge for overdue rental payments.

5. What amount can a Landlord ask for as Security Deposit?
The amount a landlord can ask a tenant for as security deposit depends on the rental agreement drawn up between the two. If the premises are rented on a weekly basis, the deposit cannot be greater than the first two weeks rent. If a monthly or yearly rental agreement has been signed, the security deposit must not exceed three-quarters or equivalent of the first months rent.

6. What if the security deposit amount exceeds the legally stipulated amount?
If a landlord asks for a security deposit amount, more than is legally permitted, the tenant has the right to deduct the excess amount with interest, from future rent owed.

6. When is the Security Deposit Returned?
A landlord is required to return a tenant’s security deposit, within 15 to 30-days of the tenant vacating his premises, unless the landlord has a claim for all or a portion of the security deposit. If the landlord and tenant dispute or disagree over the status of the security deposit, either may file an application to determine disposal of the money.

Once a landlord has given the keys of a rental apartment or home to a tenant, by law he is required to follow basic security deposit rules. While, tenants are required to do the same in order to protect their money. If a tenant does not leave the rental premises in the same condition he / she received it, the landlord has the right to deduct expenses for returning it to its original state.