What Can Landlords Legally Do with Security Deposits? - dummies

What Can Landlords Legally Do with Security Deposits?

By Robert S. Griswold, Laurence Harmon

Some unsavory landlords treat security deposits as another source of income that’s theirs for the taking. In the eyes of the law, however, a security deposit is actually the resident’s money that the landlord holds in trust for the duration of the lease. Most states restrict landlord use of security deposits to only three or four purposes, including the following:

  • Compensation for unpaid rent

  • To repair damage to the rental unit, excluding ordinary wear and tear, caused by the resident or members of his household or guests

  • To restore or replace property in the unit, such as furniture and furnishings or other items of personal property (including keys) according to terms of the lease, excluding ordinary wear and tear

  • To clean the rental unit, so it’s as clean as it was when the residents moved in

  • To recover any portion of the security deposit used by the resident as payment for the last month’s rent

Landlords can withhold from the security deposit only amounts that are reasonably necessary to remedy these damages.

The law of security deposits prohibits a landlord from making a security deposit nonrefundable or claiming in the rental contract that a security deposit is nonrefundable. As landlord, you must use security deposits only to cover actual financial damages and refund any amount remaining of the security deposit to the resident.

Courts seem to be especially suspicious of landlords’ attempts to retain security deposits, except for the purpose of repairing significant damage to the residential rental unit.

Similarly, landlords who use a different term for deposits that are made for the purposes intended to be covered by a security deposit, or withhold the return of a security deposit beyond the statutory term specified, are likely to incur the court’s wrath, and result in damages assessed against the landlord or its managing agent.