Security Deposit: Key Issues

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.