Nine Laws About Security Deposits That Every Renter Should KnowThomas Verdi
When someone holds a good portion of your money under the guise of something called “security,” you’ll want to know all the details. Security deposits aren’t difficult to understand, but they vary greatly depending on the state, and sometimes it can even depend on the city.
Don’t get screwed. We’ll explain everything you need to know.
1. Residential and commercial security deposits are different
There’s a colossal difference between residential and commercial security deposits. If you’re dealing with commercial leases you’ll likely already know what you’re doing in regard to security deposits because you've most likely been working with a lawyer.
While a residential lease typically runs five pages in length, a commercial lease can be upwards of fifty pages. Commercial security deposits are unregulated and everything depends on the deal you cut - not state laws written to protect tenants. We spoke to one commercial landlord who he told us that “whatever terms you negotiate, you don’t need to put the deposit in an interest-bearing escrow account” — meaning, a bank account held somewhere for safekeeping that earns interest — “unless you use a real estate broker.”
It gets trickier for residential leases: we’re dealing with the state government here, so it changes from state to state. But the gist of it is that the landlord will require a certain amount of money to be held — usually in escrow — to cover any damages that you might wreak upon the place, and state laws usually protect residential tenants from losing their deposits unfairly.
2. No, your deposit can’t be for 17 months of rent
Depending on state law, the deposit usually can’t exceed more than one or two months of your rent money, but this amount can vary depending on what year of the lease you’re currently in. In Massachusetts it’s simple: the deposit can only be one month’s rent, regardless. In some states, the amount of the deposit can depend on whether or not the place is furnished, like in California, where the landlord can charge two months’ rent if it’s unfurnished but three if the place is furnished.
Sometimes there are extremely detailed and bizarre clauses, such as the ramifications of adding a waterbed in California, something that will add an extra half-month’s rent to the amount of the deposit. Even with crazy waterbed clauses, some states do carry good, tenant-friendly news as well. Also in California, the security deposit can only be used to pay for certain items like unpaid rent, cleaning, repairing extra damage beyond wear and tear — and if provided for in the lease, replacing your keys, laundry cards, garage openers, whatever.
And, depending on the state, if you have good references and credit, the landlord might only hold one month’s rent, even if it could legally be more. For example, during the first year of a lease in Pennsylvania, the amount of a security deposit can’t exceed two months’ rent.
3. Your deposit must be stored safely
Where will your money be held? Make sure you receive something in writing that indicates what bank your deposit is being held in — or if it’ll be in a bank at all. Like almost everything, rules for this depend on the state. In Massachusetts, you’ll be notified in writing where the money’s being held — the name and location and the amount and account number of the deposit. It’s your legal right to know in most states.
In New York the landlord only has to put the deposit in a New York bank account if the landlord owns a building with six or more units, but the landlord still can’t co mingle the money with his or her own funds. You’ll want to know where it’s being kept.
4. You're have the right to earn money from your deposit
Sometimes interest comes into play on this cash that’s held in escrow, meaning that you can make some money. It’s not much, usually only about 1% in Pennsylvania or even .30% in Los Angeles. But the tenant is entitled to the interest on the account. Sometimes the tenant can start earning this interest only after a certain waiting period — such as two years — depending on the local law and the individual lease).
In New York, the landlord is entitled to up to 1% of the interest for “administrative fees,” and the interest can even change depending on the city, as in California. For instance, in 2015, LA was .30% but San Francisco was .1%, and Santa Monica is considering new legislation.
To get even more confusing, Massachusetts landlords have to pay the tenant 5% interest on the deposit every year, or the amount of interest at the bank where the deposit’s held, which also must be in Massachusetts. Massachusetts is pretty good to renters: the landlord also has to provide the tenant with a receipt indicating the amount of the deposit; the person receiving the deposit — if not a bank, and, if received by a property manager, the name of the lessor for whom the security deposit is received; the date on which the deposit is received; and a description of the premises leased or rented.
So look up your local laws to make sure that you don’t get ripped off...or at least miss the opportunity to buy yourself a free cup of coffee.
5. A deposit increase may be illegal, even if the rent goes up
What if the rent goes up? Again, it depends on the state. In Pennsylvania, after five years in a lease, the security deposit can’t be increased by the landlord even if the rent goes up, but in New York it can. So you’ll want check on that. In many states it doesn’t increase with the rent, but in some it does.
6. Inspection documents might be required
The landlord typically will take pictures — or record video — of the unit before and after a tenant’s occupation to document the living conditions. The landlord might also fill out a conditions/assessment report that you’ll have to sign.
At the end of the lease, or whenever you move out, the landlord must provide you with a written list of any damages to the place for which the landlord feels you’re responsible. And it has to be provided to you within a certain amount of time. In Pennsylvania it’s thirty days, in Massachusetts it’s thirty days, in California it’s twenty-one days, and in New York it’s merely “a reasonable time thereafter.” Let’s just call it fifteen to forty-five days to be safe.
If the landlord doesn’t provide this document within the allotted time, you can’t be held responsible for any damages, you get your security deposit back, any unpaid interest — sometimes from only the first two years — again, check with your locale — and you can’t be sued for any damages that exceed the deposit. Theoretically, you could trash the place and get away with it.
7. Don’t trash the place, because you might get sued
If you do trash the premises and the damages exceed the security deposit, the landlord can sue you for the difference. And if you have any disputes with a landlord in New York, instead of just having things go to court, they make you contact the Attorney General. Good luck with that.
New York also states that the security deposit must be returned whether the landlord is asked for it or not, but that’s pretty much par for the course. If you’re civil and not a revolting lunatic, just ask your landlord for the security deposit back.
To give you an idea of what the damage list mentioned above looks like, a property manager gave us a sample list of damages from a former tenant, included below.
8. You have the right to sue for an unreturned deposit
You have rights if you stay on top of things. In Pennsylvania, if the landlord fails to return your deposit or the difference accounted for between the deposit and the damage list within thirty days, you can sue for double the amount specified.
You can pretty much sue in any state, but we just mention Pennsylvania because it’s specifically written in the law. But none of this can happen if you don’t provide the landlord with a forwarding address in writing when the lease terminates. You have to give the landlord your new address in writing. No matter what state you’re in, everything should always be in writing and you should keep copies for your records.
Most landlords ignore all these rules — so it’s up to you to stay informed. For example, we talked to a property manager who told us that almost all of the landlords he knows ignore the interest laws, and they take the interest for themselves because nobody knows the law. Make sure you get what’s legally yours, even if it’s not much.
The most important thing when signing a lease is to know the law. It’s really not that hard to understand, but it varies by state, so if you ever decide to move you’ll want to know what’s up in your particular area.
Don’t get screwed out of your deposit for no good reason! Head to our Knowledge Base and look up your state's security deposit laws.
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