Establishing Security Deposit Policies and Procedures

Part of the Landlord's Legal Kit For Dummies Cheat Sheet

One of the most common sources of landlord-resident disputes is the return of security deposits. To prevent confusion and disagreements, make sure you establish security deposit policies and procedures that address the following:

  • Amount: Usually no more than the equivalent of one- or two-month's rent. Some states and municipalities have specific limits.

  • Due date: Usually due at the signing of the rental contract.

  • Allowed uses: State and local laws usually allow landlords to use security deposits only to cover unpaid rent, damages to the unit beyond ordinary wear and tear, cleaning expenses (only to make the unit as clean as it was when the resident moved in), and to restore or replace damaged or missing property, including keys and appliances furnished with the unit.

  • Where the deposit will be held: Even in states when it is not required, deposit all security deposits in a separate interest-bearing account and pass along any interest earned to the resident when you return any unused portion of the deposit.

  • Return of the unused portion: Check on the required maximum number of days you're allowed to hold any unused portion of the security deposit before returning it to the former resident, and return it earlier if possible.

The security deposit is the resident's money. Don't treat it as another source of income, because doing so may get you into legal trouble and tarnish your reputation as a fair landlord.

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