What is security deposits in the United States

When signing the lease agreement, the issue of a security deposit may arise. This deposit may be applied for various purposes such as an instalment for the last month or as a means of indemnification for damage to real estate and property.

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Lease and a deposit

Lease payment is probably the easiest part of a house or an apartment rent. A tenant makes payments in accordance with the terms of the contract.

What is security deposits in the United States

A monthly rent doesn't include a deposit that is actually a certain sum of money paid at the beginning of the rental period. This amount is held by a lessor within the lease duration and is used to cover any damage inflicted by a tenant occurred prior to the lease term expiry. But it should be remembered that moderate wear and tear is unlikely to result in money loss.

Note! The time period within which deposit funds must be returned to a renter are stipulated by state laws. A landlord has the right to hold a deposit in case of rent or utility bills non-payment.

The idea of security deposits

This is a cash bond to a landlord that secures lease instalments as well as other rental obligations (for example, compensation of harm caused by a renter). Applicable laws regarding such deposits depend on a state.

In what terms deposits and rental charges for the last month differ

Deposits and rental charges for last month are not the same issues as a rental charge is prepayment to the leaseholder for the last month of renting. Both rental fees and holding deposits are generally one month's rent instalment and in some states this may not be exceeded.

In case of a rental charge raise, a tenant may be required to increase the last month's rental fee together with the security deposit sum that will be equal to the new rental charge. A landlord is usually not allowed to handover a dwelling for use to another person without the tenant's consent. Likewise, a tenant is not allowed to apply the deposit as an instalment for the last month.

Receipts and interest on holding deposits

Attention! Upon the last month's rent and/or a holding deposit receiving, a landlord is obliged issue a receipt for each prepayment made. In case this action was not implemented a tenant should claim it to be done.

Moreover, in many states homeowners are required to provide renters with receipts. They must include the following data:

  • Amount paid
  • Date of a payment receipt
  • Intended usage of the payment
  • Name of a recipient
  • Name of a landlord for whom the rental fee is being charged, if an agent is involved
  • Signature of a landlord or an agent

Provided the rental fee is collected for the last month, the tenant must also be furnished a certificate stating the eligibility for interest. Upon the lease termination, a tenant needs to provide a landlord with the information about a shipping address where the deposit along with the interest will be shipped.

Important! In case a guaranty is required by a homeowner or an agent then a tenant should ask to check the current state of the property.

In some cases, a signed status statement is necessary and this paper normally contains a comprehensive list of existing defects. It is also worth taking photos and notes of such defects as well as the dwelling's general condition.

Deposit refund and deductions

Upon the lease termination a lessor is obliged to return a deposit during a specified time period that is typically 30 days. But a lessor has the right to deduct any unpaid rental fee that was not subject to legally withheld or subtracted by law as well as any reasonable sum to compensate any damage (including pet damage) repair caused by the lessee. But you should remember that mild wear and tear relating to normal usage should not paid. However, the lessee's responsibility is to keep the dwelling clean, sanitary and free of trash.

If any damage is identified in the premises, the following papers are usually provided by the lessor during 30 days upon the lease expiry:

  • Complete listing of damages indicating their mode and state
  • Type of repair required for the damage elimination
  • Written evidence like invoices, receipts and estimates that indicate the actual or estimated repair expenses

After deduction of all due fees, a balance on a holding deposit, if any, must be returned by the lessor. In case the deposit or the balance with accrued percentage is not given back during the specified time period upon the lease termination or the lessee is not provided with a comprehensive list of damages then the lessee may sue the lessor in accordance with the state law. It should be noted that a lot of state laws provide compensation for damage that is up to 3 times the deposit amount withheld.

Limits for holding deposits

In general, tenants have to provide a deposit as a lease part and this sum is equal to a month's rent. It is usually paid prior to accommodating. It should be remembered that limits for holding deposits are established by state laws.

A tenant gets the guaranty back after the lease expiry but the sum required for repair or other related costs that are borne by the owner can be subtracted. The typical wear and tear such as minor carpet deterioration after a year should not affect the deposit return.

The landlord's use of a deposit is limited to the obligations of a tenant that are set out in the lease contract. Deposits may be utilized to cover unpaid rentals.

The agreement should set the obligations limiting the deposit's usage by the landlord. Generally it can be counted as unpaid rental fee coverage.

Term for deposit return

The majority of state laws on holding deposits specify the duration within which a leaseholder is obliged to return the deposit to the tenant. The examples are:

  • A monthly refund limit in Colorado
  • In Montana deposits are returned within 10 days in the event of deductions absence and during 30 days if any deductions are applied
  • In Arizona the limit is 14 days.

Other provisions of the laws regarding this type of deposits may include walkthroughs as well as requirements for escrow accounts.

Types of tenant deposit contributions

Below are the deposit limits categories and the states applying them. This is the general information, that's why specific states, local laws and the agreement for changes should be always checked as all these might have exceptions.

The exceptions may include:

  • Long term rent
  • Having a pet
  • A furnished dwelling
  • Certain types of furniture like waterbeds, etc. are planned to be used

States where a 1 month rental fee is afforded

  • In District of Columbia, Nebraska, Massachusetts, Hawaii, New Mexico and New Hampshire it is applied to 12 months leases or less
  • In Alabama and Delaware it is applicable for 12 months rentals or more
  • New York, Pennsylvania and North Dakota it is allowed in case this is the first year of lease, the limit is 2 months
  • In South Dakota and Rhode Island deposit sum equals to the first month's rent

States where a fee up to 1.5 month of rent is allowed

  • In New Jersey, Arizona, Michigan and North Carolina it is applicable for monthly rentals

States allowing rent payments up to 2 months

  • California, Arkansas (for unfurnished dwellings) and Connecticut (in case a person is under the age of 62)
  • Alaska if monthly rental is below $ 2,000
  • In Virginia it is applicable only for 2 months lease
  • Kansas, Iowa, Maine, Missouri, Maryland and North Carolina for more than 2 months lease

States affording up to 3 months rental fees

  • Nevada and California if a dwelling is furnished

States applying no deposit limits

  • Illinois, Colorado, Georgia, Florida, Idaho, Indiana, Kentucky, Minnesota, Louisiana, Mississippi, Montana, Ohio, Oregon, Oklahoma, South Carolina, Texas, Tennessee, Vermont, Utah, Washington, West Virginia, Wyoming and Wisconsin.

Deduction from a deposit for cleaning and repairs

In most states and jurisdictions, the Bail Acts allow landlords to deduct from a deposit any excessive dirt or damage but not any moderate wear and tear.

In some cases security deposits are related to “indemnity deposit” and are usually a sum of money that can be withheld by a landlord provided the rented property requires any cleaning or renovation to bring the dwelling to the same state that was when the tenant first moved in.

Note! The aim of a deposit is to benefit and protect a landlord in the event that something is really dirty or damaged at the end of the rental period.

Any items that are subject to moderate wear and tear are not allowed to be deducted from deposits.

Items that can and cannot be deducted from security deposits

Below are couple examples of the items that can be deducted and this means harm is beyond mild wear and tear:

  • Broken tiles or plumbing equipment
  • Broken toilet bowl due to misuse
  • Undue holes in walls due to hangers for pictures
  • Broken walls
  • Gusts, holes or burn marks on curtains, carpets and mats
  • Paint removal applied by a tenant
  • Stains on carpets caused by leaking aquariums or pets
  • Broken locks and doors
  • Broken windows and window grids
  • Missing or broken window blinds
  • Broken household appliances as a result of negligence
  • Stuffed drains due to misuse or negligence
  • Flea and pest control by a landlord
  • Excessive mold in a bathroom
  • Dirty shower, bath, sink, mirrors or toilet bowl

Below is the list of items that are generally referred to mild wear and tear and in accordance with the Bail Acts cannot be deducted from a deposit:

  • Broken plumbing equipment as a result of normal use
  • Faded wallpaper of paint due to sunlight
  • Carpets and mats deterioration due to normal usage
  • Dirty curtains and blinds
  • Door's deformation due to age, humidity or temperature
  • Furniture marks on carpets
  • Doorknob dents in the walls
  • Broken appliances being not a result of misuse
  • Faded curtains
  • Dust Removal
  • Blown light bulbs
  • Batteries replacement for smoke detectors
  • Drawing or punching of holes in walls if not too many

In what terms does a last month's rent differ from a deposit?

Charging a deposit at the lease start in addition to the first month's rent is a common practice for real estate renting. A tenant deposits funds as a guaranty against damage that may be caused during the premises renting. However, in case a deposit relates to the last month's rent then such a deposit as well as the purposes of its usage have a different meaning.

Provided a deposit refers to the last month's rental fee then it can be used by a lessor only for this purpose. This money cannot be applied to cover expenses for damage inflicted by a lessee or to clean the dwelling after the lease expiry. A deposit only in the form of the last month's rent means that a landlord will lose the financial flexibility to deduct for renovation and services required. Such expenses will have to be covered by a landlord.

Tips regarding lease and security deposits

There are certain rules that landlords have to follow when collecting money from tenants. Below are several tips to help homeowners avoid legal errors:

Rental tips

Despite several rules for rental fee collecting exist, such payments need to be handled with caution as any mistakes could potentially result in a legal dispute.

  • The amount of rent due, the instalment date as well as its method should be clearly stated. The best way is to include these clauses in the lease contract. In case of any of these conditions amendments a written notice should be sent to a lessee as soon as possible.
  • In some states or cities it is necessary to provide a receipt. But usually no strict requirements for receipts are applied. And even an e-mail message with the text about the rental fee receiving may be enough. However, receipts generally indicate the date of the fee received, the sum got, the renter's name, the dwelling address and the lease duration covered by the fee.

Security deposits tips

Handling security deposits is a bit more complicated issue as in many jurisdictions such deposits are considered as tenant money even if owned by a landlord. Consequently, a definite state or city may require to keep holding deposits separately from own funds or deposit to interest-bearing accounts. In some states the limit on a deposit amount is set.

There are rules regarding the types of repairs that can be made with a collateral. Typically, it is used only to fix the damage that the lessee caused and not due to moderate wear and tear. Moderate wear and tear includes:

  • Warped doors and windows due to age
  • Furniture marks on carpets and mats
  • Doorknob dents in the walls
  • Batteries replacement batteries for a smoke detector, etc.

Deposit refund policies depend on states. Thus, in some states homeowners are required to quote the cost of any repair made using a collateral while in others deadlines for deposit refunds are applied, so repairs are better not to be delayed after a tenant evicts.

Finally, if the last month's rental is chosen instead of a holding deposit then it can generally be used only to cover the last month of lease and not to any repairs.