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What is a security deposit?

Typically collected at or before the lease signing, a security deposit is money paid by a tenant to be held by a landlord or property manager in the event that funds are needed to repair damaged property or cover unpaid rent after the tenant moves out. The amount of this deposit is frequently limited by state law.

Because security deposits are refundable, minus reasonable deductions, landlords must educate themselves as to the state requirements and best practices for handling these funds. You'll also need to keep detailed records, so that you'll be well-prepared in the event of a dispute. Some states even require that you provide a Security Deposit Receipt, so be sure to ask a lawyer if you have any questions about the laws that apply to your rental property.

How much can I ask for a security deposit?

The amount that you may charge for a security deposit is limited by law in most states, and it ranges from one to three months' rent depending on where the property is located. For example, in New York, a security deposit is limited to no more than one month's rent. Some states also have lower security deposit limits for senior citizens. 

There are 21 states that do not have a statutory security deposit limit. As a result, you may find that a deposit amount within the typical range for your rental market may be most attractive to prospective tenants. If you have questions about security deposits for your property, ask a lawyer

What are the rules concerning pet deposits? 

The rules for pet deposits vary by state. Some states require any additional pet deposit to fall within the general limits for security deposits. However, some states, like New York, prohibit landlords from charging more than one month's rent for a security deposit, which eliminates deposits if a tenant has a pet. 

Generally speaking, it is within your rights as a landlord to deny rental applicants with pets—however you may not discriminate against or charge a pet deposit (or pet rent) to owners of service animals. If you do allow pets, you'll want to understand the regulations in your state. Talk to a lawyer for the most-up-to-date guidelines.

How should security deposit funds be stored?

Security deposit rules vary by state or locality, and in some cases, there are no restrictions. Depending on the property location, there may be limitations on the type of account in which the funds may be stored, whether or not you pay interest to the tenant, and whether deposit funds are required to be kept separate from rental income. For guidance on the rules that apply to your property, ask a lawyer

What costs can a landlord deduct from a security deposit?

A landlord may generally deduct from the deposit for the following types of damages and other expenses after the tenant moves out:

  • Significant damage: This may include holes in the wall, large stains on the carpet or walls, burn marks, and damaged appliances, windows, or doors.
  • Cost of cleaning: Tenants are typically responsible for cleaning the rental unit to its pre-move in condition, so cleaning costs associated with excessive trash or dirt usually can be taken out of the deposit.
  • Unpaid bills or rent: The deposit may cover the cost of any unpaid rent or bills, such as utilities for which the tenant is responsible.
  • Broken lease: Depending on applicable state laws and the terms of the lease, you may be able to keep some or all of the security deposit if the tenant breaks the lease prior to the move-out date.

Whatever you decide to deduct from the deposit must be itemized and documented in a transparent manner. You should also keep the receipts for any repair or cleaning services and either provide copies along with the Security Deposit Return Letter or make them available upon request. 

Before the tenant leaves the property, a final walkthrough with the tenant can be helpful, as well as the completion of a Move Out Inspection Checklist, so that everyone is on the same page and agrees to potential deductions.

What happens if a landlord does not return the security deposit on time? 

States typically have a time limit for returning the deposit. For example, in New York, landlords usually have 14 days. In Texas, landlords generally have 30 days. In California, landlords typically have 21 days. If you hold the deposit past the deadline or fail to return what is owed to the tenant, you may be required to pay interest or you could be sued in small claims court. A landlord-tenant lawyer can help you understand the requirements for your property.

Landlords have much more to manage than merely collecting rent checks. Make sure you understand applicable state laws, document everything, and follow best practices. If you do this, your rental business may go relatively smoothly. If you have additional legal questions about your rental property, ask a lawyer

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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