Don't Forget: Security Deposit is the Renter's Money

Every state has its own laws regulating the care of security deposits from renters. The first rule from every state is to the landlord, reminding him or her that the security deposit is NOT their money. The security deposit comes from the tenant and belongs to the tenant until the term of the lease expires.

State laws govern the handling and care of the security deposit from how much it can be, where it has to be deposited, how much annualized interest it must earn, what can be taken out of it at the end of the lease, and the time when it's supposed to be returned to the tenant.

FindLaw.com has a state-by-state listing of how much landlords are allowed to charge for deposits. The highest is "no statutory limit," which means the landlord can charge as much as possible -- nearly half the states have no limit on deposits. The state of California has the highest regulated security deposit allowance – up to three-and-a-half months rent. Those with limits stand between 1 and 2 month's rent. Thus if your rent is $1,500, the most a landlord could charge in Virginia and Maryland, for instance would be $3,000, where landlords are allowed to charge up to 2 month's rent for deposit.

The market also plays a role for landlord's fees. While the law applies no limits in 24 of the states, most people are going to walk away from a rental where the landlord wants too much money up front. The market limit may be one or two month's rent -- charge more and your unit may never get rented out.

There may be some comfort to tenants to know that the security deposit is not just a free loan to landlords. Real estate law and state regulations limit what the landlord can do with the money. First of all -- they must not co-mingle the funds in personal accounts. Your landlord should have a separate account established for deposit moneys. The check goes into that account and is held until the end of the lease.

Unfortunately, if you check violations with the state real estate commission, the co-mingling of funds requirement is also the one most violated, most times out of ignorance of this statute by private real estate investors. If you're concerned about your deposit money, require your landlord to provide a copy of the deposit slip, showing that it's been deposited.

Depending on your state of residence, it may be required to be placed in an interest-bearing account -- or not. Tenants in the Washington, D.C. area, enjoy this little bit of "investment" and are supposed to receive interest at the end of the rent period, as well as their deposit amount. And that brings up the final point about security deposits -- how much are you going to get back at the end of the lease.

The whole reason of the security deposit is to protect the landlord from damage to his or her investment outside of usual wear and tear. If your cat has marked his territory throughout the house and ruined the carpet -- you may have just lost your deposit. If the carpet has just aged over time, then you should not lose your deposit so the landlord can recarpet in between tenants.

Legal advice web site Nolo.com has a good list of deductions. Here are just a few of them:
Ordinary wear and tear (Landlord's responsibility):
Curtains faded by the sun
Water-stained linoleum by shower
Minor marks on or nicks in wall
Dents in the wall from door handle bumping it
Moderate dirt or spotting on carpet
Damage by tenant: (Tenant's responsibility):
Cigarette burns in curtains or carpets
Broken tiles in bathroom
Large marks on or holes in wall
Doors off its hinges
Rips in carpet or urine stains from pets

To protect your security deposit, here are some tips on how to make sure you get as much or all of it back at the end of the lease.

Be aware of your lease requirements. I get emails all the time from tenants who just simply signed a lease and never read over it, thereby never knowing that some of the things they did to the apartment or house was going to be repaired from funds out of the security deposit.
Conduct a move-in inspection. Most jurisdictions have a move-in inspection form whereby the landlord and tenant can walk through and note defects in the property at the time of move-in. Any holes in the wall, stains on the carpet, discoloration of fabrics, and working order of appliances can be noted and discussed as to responsibility of the tenant or the landlord to have it fixed.

Take care of the property. While you may be renting the house and the landlord is responsible for providing a functioning dwelling for you, this doesn't mean that the landlord is an ATM machine to take care of the tenant's blatant mistakes. If the garbage deposal breaks because you've allowed your silverware to continually dump down into it, the landlord may have a word with you about who's going to pay for it.

Return the property to move-in condition when you move out. Keep your move-in inspection form in a secure place so you can substantiate that you have left the property in as good or better condition than when you moved in. The primary argument between landlords and tenants over deposit money is because of the property condition at the end of the lease and who should be responsible for fixing, cleaning, or repairing it. With the advent of digital photography (with date stamps) this task has gotten even easier.

When it comes to the security deposit, all parties need to understand the rules and requirements for both sides.

Published: April 21, 2006