What You Should Know About Security Deposit Disputes for Small Claims Court

The most common reason for landlords and tenants to end up in small claims court is the landlord’s refusal to return the tenant’s security deposit. The purpose of a security deposit is to ensure that the landlord is compensated if the tenant wrecks the apartment before leaving or if she skips town without paying the last month’s rent.

It’s hard to get blood out of a stone or rent out of someone you can’t find, so the security deposit, usually collected when the tenant first signs a lease, is designed to cover those costs.

Many states require a landlord to place the security deposit in an interest-bearing account and to surrender the interest to the tenant when the security deposit is returned. This may not apply in one- or two-family homes where the landlord shares the premises with you. If the landlord lives in the other half of the house, she may have to comply with the deposit law.

In some states, the landlord must deposit each tenant’s money in a separate account and not commingle different tenants’ deposits. Check your state’s rules on this. It’s an issue often overlooked, and if the landlord was required to do so and didn’t, it can help the tenant establish greater credibility if the dispute goes to trial.

Some landlords wrongfully take the concept of the security deposit as bonus money for themselves. After the tenant leaves the property —either voluntarily or involuntarily after a court-ordered eviction — some landlords just keep the security deposit, even if the apartment needed no repairs or no rent is owed. A devious landlord worries about returning the money to the former tenant only if the tenant sues her for it.

Equally devious, some tenants attempt to trick their landlords out of the security deposit by simply skipping out on the last month’s rent and announcing that they are “living out their security deposit.”

So, if the landlord wants to collect the last month’s rent after the tenant moves out, she has to locate the tenant and sue for it. Although no one gets hurt by this practice as long as the apartment isn’t damaged when the tenant moves out, it isn’t the purpose of the security deposit and isn’t really legal, either.

The best way to avoid a small claims suit involving a security deposit is simply to use the money for the purpose it’s intended, and be sure that everything is handled in a fair and transparent manner.

As a tenant, inspect the apartment with the landlord present the day you move out, hand her the keys, and get your security deposit back right then. If the landlord refuses to give you your deposit that day, have her sign a paper stating that she received the keys, that the apartment was in good shape, and that you will receive your security deposit on whatever date you agree to.

It’s always a good idea for both sides to have a third person present to verify what occurred. (Of course, if you’re leaving in the middle of the night without telling anyone because you have more creditors chasing you than villagers chasing a Transylvanian count, this isn’t a viable option.)

One simple but common error tenants make gives the landlord the legal right to keep the security deposit — not surrendering the keys to the landlord when they move out. The common law rule is that the tenant is still in legal possession of the apartment so long as she has a set of keys.

So, leaving the keys on the kitchen table, in the mailbox, or mailing them back may not count as a valid surrender of the keys and allows the landlord to legally keep your security deposit or charge another month’s rent if you move on the last day of the month and the landlord doesn’t get the keys until the next day.

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