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Landlord Security Deposit Laws: Use, Refund & Restrictions

Joshua M. Marks, Esq.
3 min read

application formThe volatile residential real estate market that is currently affecting thousands of homeowners across the country will undoubtedly force many people to postpone their dream of homeownership and settle for life as a tenant in a rental property.

As more and more individuals and families enter into short and long-term leases, it is essential for them to have a basic understanding of the function and permissible use of security deposits.

Security Deposit Uses and Amounts

The basic purpose of a security deposit is to give the landlord some level of protection against excessive wear-and-tear of the property by a tenant. Over the years, many landlords have often charged tenants a disproportionate amount of security upon signing the lease or have misappropriated or misapplied the funds in violation of the law. If you are going to enter into a residential lease, it is imperative that you understand your rights with respect to the security deposit funds you give the landlord.

Many states restrict the amount of security that a landlord may obtain from a tenant. In New Jersey, for example, a landlord may not seek in excess of one and one-half times the regular monthly rent payment as security. Landlords are typically required to deposit the security in an interest bearing account. In New Jersey, the landlord is required to either pay the interest each year directly to the tenant or apply the interest to pay part of the tenant’s rent that is due.

Further, the landlord must disclose via written notice the following:

  1. The name of the bank where the security is deposited
  2. The address of the bank
  3. The type of account in which the security has been placed (i.e. money-market account)
  4. The amount of interest the account pays. This notice usually must be provided to the tenant within a set amount of time, such as thirty days, from the date the landlord receives the security. Most states also require that the tenant be given notice when the security deposit is transferred from one landlord to another (upon the sale of the property) or if the landlord moves the security from one financial institution to another.

In most state statutes, the tenant’s rights are spelled out in the event that a landlord does not handle the security according to law. For example, a tenant may be able to pay past or future rent from the security deposit if the landlord has failed to pay the yearly interest to the tenant or has not given the tenant proper notice about the particulars of the security deposit.

Also, some states forbid the landlord from taking any money from the security to pay for repairs or rent due while the tenant still lives in the property. Landlords are also restricted in collecting additional security from a tenant at the same time that the landlord increases rent.

Refund of the Security Deposit

The most important issue to most tenants is how to retrieve the security deposit upon the expiration of the lease-term. Again, looking to the law in your state should provide the method and time frame for obtaining the security deposit from the landlord. Typically, a landlord must return the security deposit within thirty days of a tenant vacating the property less any charges for unpaid rent and damages to the property. The landlord is obligated to provided a complete list of the damages he/she claims and the estimated cost of repairs in writing and sent via certified mail.

The landlord can only charge for property damage that exceeds ordinary wear and tear. Examples of normal wear and tear are faded paint, window cracks caused by weather and leaky faucets. Also, the landlord can’t deduct a cleaning fee from the security provided the tenant leaves the property in broom-clean condition. Beware of landlords who try to deduct cleaning fees and painting fees from your security deposit!

To protect yourself, have the landlord inspect the property before moving out. Have the landlord sign a note indicating that the premises are clean and undamaged. Finally, take pictures of the property before vacating the premises. Remember–the security deposit is YOUR MONEY. So, make sure you do what is necessary to get it back from the landlord…with interest!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.