All About Security Deposits

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.