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Fundamentals of Rental Security Deposits

What Is A Rental Security Deposit?

A rental security deposit is a certain amount of money that tenants are required to place with the landlords before they can attain possession of the rental property.

This security deposit aims to protect the landlords should the tenant cause any damage to the property or fail to make timely and complete rent payments. Although the deposit, or whatever portion remains unused, is refundable, some states like Nevada allow landlords to use a certain percentage of the money for cleaning services once the tenant has moved out.

How Is the Rental Deposit Amount Determined?

Usually, the standard practice is to keep the rental deposit amount equal to a one-and-a-half month’s worth of rent, but again, the amount can vary from state to state. For example, Pennsylvania requires tenants to submit a deposit equal to two months’ worth of rent during their first year of occupancy, but this amount is slashed to one month’s worth of rent if the tenant’s stay exceeds a year. At this point, the excess amount must be returned to the tenant.

Security Deposit Requirements:

Yet again, there is no uniform law regarding security deposits, and each state has its regulations as to how security deposits are to be returned and accounted for following the tenant’s moveout.

If, during their stay, the tenant has complied with the lease agreement and has not damaged the property in any way, the landlord must return the lease amount to the tenant at the end of the lease agreement. Otherwise, the tenant can retain some or the entirety of the deposit amount as cover for property damage or losses brought about by the tenant’s actions. The amount retained should not be more than the cost of the damage or missed rental payments.

Most states require landlords to submit an itemized list of repairs and other expenses incurred, along with the corresponding receipts for those expenses, to their tenants.

Landlords cannot make deductions for damage and losses occurring as a result of natural wear and tear, such as:

  • Faded paint or wallpapers.
  • Carpet and rug wear (especially if the tenant has been residing for a lengthy amount of time).
  •  Faulty appliances, provided the fault is not a result of any misuse, abuse, or carelessness.
  • Minor wall dents made by doorknobs.

The security deposit terms must be a part of the lease agreement. Landlords should enter the security deposit amount, clearly explain the rationale behind the said amount, specify how the money is to be deposited, reasons for possible deductions, and when and through what means the landlord will return the deposit to the tenant. In some states, tenants must also provide a receipt to the tenant upon receiving the deposit amount. The receipt will contain information like the amount received, the financial institution holding the amount, and the annual interest percentage that the money will generate.

To conclude, understanding the fundamentals of rental security deposits is essential for both landlords and tenants to cover all the bases, fulfill their obligations, and know and protect their rights in case of a dispute.

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