What are security deposits and how do they work?
A security deposit is additional money that the landlord collects from the tenant and holds for potential charges. These charges might include unpaid rent, property damage, or legal costs. Some landlords collect additional deposits for pets to offset the likelihood of a pet causing damage or forcing additional cleaning.
Your Lease Agreement should specify the amount and use of the security deposit. At the end of the lease, you probably want to send the tenant a Security Deposit Return Letter to document that you've returned their deposit.
If you withhold money from the deposit, you are generally required by law to give the tenant notice of the charges within a certain number of days after they move out. This requirement varies by state or local jurisdiction.
How is a security deposit calculated?
Many security deposits are equal to one month of rent. Some landlords will charge an additional month based on the tenant's credit history or if there is other risk involved. For example, landlords in areas with strong tenant protections often charge higher security deposits due to the time and cost of removing a tenant.
You may see some landlords charging no security deposit or only a nominal amount. Large landlords can spread the risk of loss across their units. They also often use a low deposit as a marketing tool. A low deposit may not be suitable for a small landlord who is unable to take on the additional risk.
The Lease Agreement should state the dollar amount of the security deposit. If the deposit is equal to one month of rent, you should state this as well. This makes it easier to raise the security deposit if you renew the lease at a higher rent.
Is there a limit to how much can be required for a security deposit?
There are practical and legal limits to the amount of a security deposit. Practically, if you charge more than similar properties, it will be harder to find tenants. Some state and local governments have legal limits on the amount of the deposit. For example, the limit in New York is one month of rent and the limit in California is two or three months depending on whether the property is unfurnished or furnished.
You should check for what counts as a security deposit in your area. If you want to also charge the last month's rent, this may or may not count as a security deposit or towards the limits on security deposits. It also varies as to whether pet deposits count as security deposits or towards the deposit limits.
Regarding pet deposits, you may also be restricted on charging a pet deposit if the tenant wants to add a pet during the lease. If the lease is silent on pets, you generally won't be able to add a deposit. If it says no pets, you can negotiate a deposit with the tenant and sign a Pet Addendum to waive the no pets rule. Another way to handle it in the original lease is to specify a pet deposit if the tenant had pets, have them sign that they don't have pets, and then collect the predetermined amount when they get a pet.
What can a landlord use a security deposit for?
The landlord generally can't touch the security deposit money during the lease. In most states, the deposit money belongs to the tenant, and the landlord must hold deposits in a separate bank account. The landlord may be able to apply the deposit towards damage or missed rent during the lease and then have the tenant repay the deposit. Many landlords have allowed tenants to put their deposit towards rent during COVID-19.
At the end of the lease, the presumption is that the tenant gets their full deposit back. The deposit is for damage beyond reasonable wear and tear. For example, you can charge a tenant for a stain in the carpet but not to replace a carpet that is worn from normal aging. If the tenant is behind on rent or other charges, the deposit may also be used towards those charges.
Some jurisdictions may have restrictions on whether you can use the security deposit for missed rent, property damage, or other specific charges. You may also lose your right to withhold the deposit if you don't provide timely notice of charges. In those situations, you will need to return the security deposit and pursue any amounts the tenant hasn't paid through collections or small claims court.
Speak to a Rocket Lawyer On Call® attorney if you are not sure about withholding a security deposit or if you have other pressing questions about your rights as a landlord.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
FAQs
The total security deposit can never be more than one and a half times the full monthly rent. Remember, a security deposit can include things like “last month's rent” paid up front, or a “pet deposit.”
What is the most a landlord can charge for deposit? ›
For unfurnished residential properties, the limit on security deposit amount is typically two months' rent. For furnished properties, the limit on security deposit amount increases to three months' rent. It is important to note that landlords cannot charge more than the legal limit for a security deposit.
What are the rules for security deposits in NJ? ›
Landlords are not permitted to require more than one and one half times the monthly rental payment as a security deposit. Any additional yearly security deposit increase may not exceed 10% of the current security deposit. There is no time limitation within the statute for making a request of a deposit.
How much can a landlord charge for a security deposit in CA? ›
By law, security deposits must be returned when the tenant moves out, minus allowed expenses. The law limits the amount of security deposits. o Until July 1, 2024, the limit is two times the monthly rent (or, for furnished units, three times the rent). o After July 1, 2024, the limit is one month's rent.
How much to charge as a deposit? ›
A security deposit is money, usually 1 to 2 month's rent, that a landlord holds in case the tenant causes any damage to the rental unit or breaks the lease and doesn't pay rent.
What is the highest amount a landlord can charge an example of? ›
Is Rent Control an Example of a Price Ceiling? Yes, rent control is an example of a price ceiling. A price ceiling is the maximum a seller is allowed to charge for a product or service as mandated by law. Rent control limits the amount a landlord can charge and/or increase the rent on their property.
Are nail holes normal wear and tear in California? ›
According to the HUD, nail holes in the walls are considered normal wear and tear. However, it's reasonable to classify large screw holes or multiple nail holes that cause damage to the paint or drywall as property damage.
How to sue landlord for security deposit in NJ? ›
If the amount is $5000 or less, the tenant can sue in the Small Claims Section of the Special Civil Part Court. If the amount is more than $5,000, the tenant can sue in the Special Civil Part. If the amount is more than $15,000, the tenant must sue in the civil part section of the Law Division.
Can a landlord charge a cleaning fee in New Jersey? ›
Landlords cannot charge cleaning fees to tenants who leave their apartments broom clean. Landlords often try to deduct such fees, as well as fees for painting. There are steps you can take to prevent a landlord from charging you for ordinary wear and tear, cleaning, or painting.
What can't a landlord do in New Jersey? ›
Landlords in New Jersey cannot violate the implied warranty of habitability, discriminate against tenants, unjustly withhold security deposits, evict tenants without proper notice or due process, raise rent without giving proper notice, enter a tenant's dwelling without reasonable notice except in emergencies, or ...
If you're looking at an apartment that costs $1,500 per month in rent, according to the 3x rule, you would need a gross monthly income of at least $4,500 (1500 x 3) to be considered a suitable tenant.
How to get around 3x the rent? ›
You may still be able to get the apartment by increasing the security deposit, finding a guarantor, or demonstrating your financial responsibility even if you don't make three times the rent by providing your potential landlord with bank statements that show financial responsibility and sound decision-making regarding ...
How much money does a landlord have to give a tenant to move out in California? ›
But, your landlord can still require you to move out for one of the “no-fault” reasons listed in the law. If your landlord evicts you for one of these reasons, they must first give you one month's rent or waive one month's rent to help you move out.
What is the recommended amount for a deposit? ›
Generally, banks and financial institutions will recommend you have a deposit of at least 20% of your prospective property's purchase price. So, if we go back to our $400,000 home, you'd want to provide $80,000.
What is the cost of deposit? ›
Cost of deposits is the average cost of interest paid to deposit holders of the bank.
How much do I pay for deposit? ›
What is the minimum deposit for a mortgage? The minimum deposit you need for a Nationwide mortgage is 5% of the property price, which would be a 95% mortgage.
What is the new deposit law in California? ›
A California law limiting security deposits to one month's rent for both furnished and unfurnished units took effect today, July 1. The legislation, AB 12 by Assemblyman Matt Haney, D-San Francisco, was signed into law by Gov.
What is the holding deposit law in California? ›
California. California law stipulates that a holding deposit becomes non-refundable if a prospective tenant fails to occupy the unit after agreeing to do so. However, landlords must provide tenants with a written holding deposit agreement detailing the conditions under which the deposit may be retained.
What is the maximum security deposit a landlord can charge in California in 2024? ›
Effective July 1, 2024, California residential landlords will generally only be able to charge security deposits equal to one month's rent with some exceptions for smaller landlords. This is pursuant to Assembly Bill 12 approved in 2023 by California Gov.
How long does a landlord have to return a security deposit in Wisconsin? ›
Returning security deposits (ATCP 134.06(2))
In that case, the landlord must return the security deposit within 21 days after the dwelling unit is re-rented.
