What Is a Security Deposit?

Protecting Your Rental Property

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Security Deposit Definition:

A security deposit is a sum, usually in the form of money, that the tenant agrees to pay the landlord before moving into the rental unit. The amount is usually based on the monthly rent. 

For Example: The landlord required the equivalent of one and a half month's rent to be held as a security deposit in case of damage to the apartment or breach of lease.

3 Benefits of Collecting a Security Deposit

Landlords are not required to collect a security deposit from there tenants, but it is usually in a landlords best interest to collect one.

Here are three important reasons to require a security deposit before a tenant can move into your rental property.

  • Tenants More Careful- No one likes losing money. If a tenant knows their actions will determine if they receive their full security deposit back, they are more likely to avoid damaging their apartment and will want to follow the terms of their lease.

 

  • Safeguard Against Damage- By collecting a security deposit, a landlord can take immediate deductions from this deposit instead of having to file a lawsuit against the tenant to pay for the damages. 

 

  • Safeguard Against Non-Payment- Since a security deposit is usually equal to one month's rent or more, it helps to financially protect the landlord if the tenant stops paying their rent.

Laws Will Differ By State

There is no uniform rule for security deposits in the United States. Every state will have specific rules that will apply to landlords and tenants in the state.

This includes the maximum amount a landlord can charge as a security deposit. There are also unique rules for how long after move out you have to return a tenant's deposit and even the reasons you can take deductions from a tenant's deposit.

See Also: Security Deposit Limits by State

Include Security Deposit Terms in Your Lease

If a landlord has collected a security deposit from a tenant, it is important that the landlord include the terms of this security deposit in the lease agreement.

This should include the amount of the security deposit, where the deposit will be stored, reasons a landlord can make deductions from the deposit and when and how and when the deposit will be returned to the tenant.

See Also: Sample Security Deposit Lease Clause

Security Deposit Receipt

Many states will require a landlord to provide the tenant with a receipt after collecting the tenant's security deposit. This receipt may include the amount of the security deposit, the name and address of the financial institution where the deposit is being kept and the annual interest rate.

See Also: Sample Security Deposit Acknowledgment Form

Taking Deductions From the Security Deposit

Each state allows a landlord to take deductions from a tenant's security deposit. At the end of a tenant’s lease, if the tenant has fully followed their lease agreement, the landlord will return the security deposit in full. If a tenant has violated the terms of their lease, including, but not limited to, non-payment of rent or damage to the property, a landlord may be allowed to keep all or part of the security deposit to cover their loss.

See Also: 5 Reasons You Can Keep a Tenant's Security Deposit

Security Deposit Disputes

There are times when a landlord and tenant will disagree about the deductions that have been taken from a security deposit.

These disputes will often be taken to court. The best way for a landlord to win this dispute is for the landlord to understand the security deposit laws in his or her state and to follow and document any actions taken relating to the security deposit.

See Also: How to Handle a Security Deposit Dispute