FAQs Regarding Security Deposits

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.