Security deposits are an essential part of rental property management. No one likes to think about things going wrong, but a security deposit provides just that – security against unexpected situations such as damages and lease breaks. Deciding how much to charge is just as important as understanding what a security deposit can be used for. Read on as we discuss some key things to know to make sure you are prepared for the unexpected.
Key Takeaways
- Security deposits can help protect landlords against certain financial losses, such as unpaid rent, tenant-caused damage beyond normal wear and tear, and other costs permitted by applicable law.
- Security deposit laws vary by state and locality, including rules for deposit limits, storage, interest, allowable deductions, documentation, and return deadlines.
- In Maryland, residential security deposits generally cannot exceed one month’s rent, although a limited exception may apply in certain circumstances.
- Landlords should thoroughly document the condition of a rental before and after a tenancy and provide required documentation for any lawful deductions from the security deposit.
Why is a Security Deposit Important for Your Rental Property?
Security deposits are a set amount of money paid before taking occupancy of a rental property. These monies are held by the landlord for the duration of the lease and either returned to the tenant or withheld for damages. However, there are several essential things to remember:
- Thoroughly Document Property Condition: To withhold damages, you must accurately document the “before” condition. So, a thorough move-in inspection should be done, and be sure to take lots of photos. Once the tenant vacates the property, the landlord can perform a move-out inspection to determine damages and get estimates as needed.
- Know the Local Laws: States differ in how much landlords can lawfully charge for a security deposit. In Maryland, for example, a residential security deposit generally cannot exceed one month’s rent, although a limited exception applies in certain circumstances. Maryland landlords generally must also return the deposit, plus applicable interest and less any amounts rightfully withheld, within 45 days after the tenancy ends.
- The Security Deposit Is Not the Last Month’s Rent: A clearly written lease is vital for any rental, and outlining what is expected for the deposit is critical. Therefore, the contract should state any circumstances that could allow the landlord to withhold some or all of the deposit.
What Can a Security Deposit be Used For?
Security deposits can be used in several situations. In most cases, the landlord must provide estimates, receipts, or proof to substantiate the amount withheld. Below are some examples of reasons to withhold some or all of a deposit.
- Breaking the Lease Term Early
- Nonpayment of Rent
- Damage to Property
- Excessive Cleaning Costs
- Unpaid Bills or Utilities
Breaking or Terminating a Lease Early
When a tenant ends a lease early, a landlord may be able to withhold part of the security deposit for actual losses resulting from the lease breach, depending on the lease and applicable state law. However, a security deposit should not automatically be forfeited simply because a tenant terminates a lease early. Landlords should document their actual losses and follow applicable requirements for withholding deposit funds.
Nonpayment of Rent
Most states allow landlords to keep all or a portion of the security deposit to cover unpaid rent when a tenant vacates. Paying rent is a condition of the lease; therefore, nonpayment is considered a breach of the lease. So, if a tenant does not fulfill their contractual rent obligation, landlords may be allowed to keep the portion of this security deposit.
Damage to the Property
Damage is another reason landlords can withhold a deposit. Tenant damage is defined as repairs beyond what is considered normal wear and tear. Below are some examples to help determine the difference.
Examples of Normal Wear and Tear
- Small nail holes in the walls from hanging pictures
- Minor stains on the carpet
- Dirty grout in baths or showers
- Loose handles or doors on kitchen or bathroom cabinets
- Minor scrapes or scratches on the flooring
- Minor scratches to countertops
Examples of Tenant Damage
- Multiple or large holes in the walls
- Large stains or holes in the carpet
- Extensive scratches on hardwood floors
- Missing outlet covers or fixtures
- Cracked kitchen or bathroom countertop
- Broken windows, doors, or fixtures
Cleaning Costs
Routine turnover cleaning associated with ordinary use generally should not be charged against a security deposit. However, landlords may be able to deduct documented costs for tenant-caused conditions beyond ordinary wear and tear when permitted by applicable law. For example, if the apartment requires a haul-out of trash or personal items left throughout the home or if the tenant had a pet that caused a significant cleaning need.
Unpaid Utilities
Depending on state law and the terms of the lease, unpaid tenant obligations that result in an actual loss to the landlord may potentially be deducted from the security deposit. Landlords should verify that a particular deduction is permitted under applicable law before withholding funds.
How Much Should a Security Deposit Be?
A security deposit is just as necessary as the monthly rent. Deciding how much to charge depends on several factors, but all are important in protecting your investment. Charge too little, and you may not be able to cover damages; charge too much, and it can drive away potential renters. As you weigh your options, consider these points below.
- State Maximums
- Monthly Rent
- Property Amenities
- The Competition
State Laws Limit the Security Deposit
Many states have limits on how much a landlord can charge for a security deposit. Security deposit amounts vary depending on state and local law, the rental market, and the landlord’s established deposit policy. Landlords should apply their deposit policies consistently and ensure they comply with all applicable landlord-tenant and Fair Housing laws. In states without a maximum limit set, it is a good idea to look at the local market to gauge what to charge.
The Rental Price of the Unit
Another factor in determining the deposit is the rental rate. So, the price will influence the amount of the security deposit you can collect. For example, in Maryland, a residential security deposit generally cannot exceed one month’s rent, although a limited exception may apply in certain circumstances.
Property Amenities
The next criteria for determining the deposit amount are the amenities of the property. Where permitted by state and local law, a property’s furnishings, features, and potential replacement costs may factor into a landlord’s deposit policy. However, landlords must comply with applicable security deposit limits and apply their policies consistently.
Depending on applicable law and the landlord’s established deposit policy, property characteristics that may be considered include:
- Elevator in the Building
- Onsite Parking
- Furnished Unit
- In-unit Washer/Dryer
- Fully Renovated Unit
- New Construction
- Luxury Finishes
- Onsite Gym or Pool
FAQs About Security Deposits
What Can a Landlord Use a Security Deposit For?
The permitted uses of a security deposit depend on state and local law. Generally, landlords may be able to use deposit funds for unpaid rent, certain losses resulting from a lease breach, and tenant-caused property damage beyond ordinary wear and tear. Landlords should document deductions and follow all applicable notice and itemization requirements.
Can a Landlord Keep a Security Deposit for Normal Wear and Tear?
Generally, landlords cannot deduct from a security deposit for ordinary wear and tear. Normal wear and tear refers to deterioration that occurs through normal use of a rental property, while tenant damage generally involves damage beyond what would reasonably occur through everyday use.
How Much Can a Landlord Charge for a Security Deposit in Maryland?
In Maryland, a residential security deposit generally cannot exceed one month’s rent. A limited exception allows a deposit of up to two months’ rent when specific statutory requirements involving utility assistance and utility payments are met.
How Long Does a Maryland Landlord Have to Return a Security Deposit?
Maryland landlords generally must return a tenant’s security deposit, plus applicable interest and less any amounts rightfully withheld, within 45 days after the tenancy ends. When funds are withheld for damages, landlords must also comply with Maryland’s itemization and documentation requirements.
Can a Security Deposit Be Used as the Last Month’s Rent?
Tenants generally should not treat a security deposit as the final month’s rent unless the rental agreement and applicable law allow it. In Maryland, money paid in advance as the last month’s rent can fall within the statutory definition of a security deposit, so landlords and tenants should carefully follow Maryland’s security-deposit requirements.
What Should Landlords Document Before Withholding a Security Deposit?
Landlords should document the property’s condition before and after the tenancy with inspection reports, photographs, and other records. If deductions are necessary, landlords should retain invoices, receipts, estimates, or other supporting documentation required by applicable law.
Protect Your Investment With BMG
The local rental market is another consideration in determining the amount of a security deposit. Research similar units on the market with comparable amenities and see what the competition is charging. Moving is expensive, and costs add up quickly. If a tenant is trying to decide between similar units, their choice may come down to the deposit. Make sure you are on par with similar units.
Security deposits are a must for all landlords. If you prepare for unexpected damages by having a solid lease, the right amount of deposit, and an understanding of local laws and what a security deposit can be used for, you will protect your investment. Do you have questions or need advice on how to best protect your rental property interests? Contact a property management group in your area to speak with a property management expert.
