Landlords: How to Use Security Deposits to Protect Your Property

State and local laws dictate how much of a security deposit landlords can require, under what circumstances they can use the tenant’s deposit funds and a variety of other rules and regulations landlords must follow. Study this page to make sure you’re handling deposits according to local law. Should you need additional legal advice, join LegalShield to get unlimited access to law firm in your state. As a landlord adding the Home Business Supplement to your Legal Plan gives you the ability to work with a lawyer on this important part of the rental process.

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The security deposit laws landlords must follow

While the lease may come in to play, ultimately, security deposits are governed by state and local laws. Since the rules vary from state to state, it’s critical that you know the laws in the state in which your rental property is located.

Let’s review the most common scenarios and questions we receive from landlords.

The maximum security deposit a landlord can require

How much of a security deposit can landlords require in the first place? Once again, the answer depends upon the state in which the rental unit is located. Here are a few examples.

  • Some states limit security deposits to an amount equal to one month’s rent.
  • California limits deposits to two month’s rent, unless the rental is furnished, in which case the deposit can be up to three months.
  • Some states have no limit on the amount of a security deposit a landlord can request.
  • Cities and counties might have different security deposit laws you need to check, especially if the unit is rent controlled.

If this is your first rental or you are unsure about the laws in your state, it’s a good idea to get legal advice to protect your real estate investments. When you join LegalShield, you can be on the phone with an experienced landlord lawyer after your membership is approved and after initial contact. Your provider lawyer will be able to tell you exactly how to handle security deposits for your rental unit.

Legally permitted uses of a tenant's security deposit

You collected a security deposit to protect your investment against damage, missed rent and other common tenant issues. But when are you allowed to actually use all or a portion of a tenant’s security deposit? Here are some general rules.

  • To return the unit to its original condition at the end of a lease term (not upgrade or improve the unit).
  • To repair property damage caused by a tenant (this does not include normal wear and tear).
  • To clean the property if it’s excessively dirty when turned back over to you.
  • To pay for removal of property left by the tenant.
  • To make-up unpaid rent.

Most states require landlords to send a letter to the tenant notifying them of their intent to use their security deposit funds and to provide an itemized list of deductions and receipts for any repairs they claim to have made. If notification does not satisfy local law, landlords may forfeit their right to use the funds on deposit. Also, the landlord may be required to conduct a walk through with the tenant(s) to point out their reasons for withholding all or a portion of the security deposit and give the tenant a chance to dispute their claims and/or time to make necessary repairs.

The number of days a landlord has to return a security deposit

Whether you are claiming deductions from the original security deposit or not, at the end of the lease term, you must return any remaining funds to the tenant within the time period indicated by state law.

Arizona requires deposits to be returned within 14 days and the tenant has the right to be present at the final inspection. Arkansas gives landlords 60 days, while Florida provides 15-60 days depending on whether the tenant is challenging deductions.

As with everything else on this page, you’ll need to check the laws in your state or contact a local lawyer to get sound legal advice.

When landlords are required to pay tenants interest earned on a security deposit

In almost all states, landlords are required to keep security deposits in a separate bank account. Some states, such as Florida and Connecticut, require landlords to pay any interest earned on security deposits back to the tenant. Payments may be due at the end of the rental term or annually if the lease has a multi-year term. Other states allow landlords or property managers to keep any interest earned.

In order to determine the situation in your state, you can conduct internet research. Alternatively, you can purchase LegalShield’s most popular Small Business Plan for $49/month and a lawyer in your state can answer all of your questions regarding security deposits, your lease in general or any other area of business law.

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