What are Security Deposits? Everything Renters Should Know
You’ve landed a great apartment and you’re looking forward to moving in soon. Congrats! However, before you can call your new place home, you’ll need to pay an assortment of fees to your landlord.
It’s easy to understand first and last month’s rent. But what's the deal with security deposits?
What is a Security Deposit?
TL;DR: A security deposit is a sum that a new tenant pays to a landlord or property management company before moving in. Security deposits are the first line of defense for landlords. They provide insurance if a tenant causes damages to the apartment that’s beyond normal wear and tear.
That's the gist of it, but there is plenty to go over. Don’t worry, we’ve got you covered with our in-depth guide on security deposits.
Here’s everything you need to know about security deposits to help you to budget accurately. We’ll help you to make sure you get your security deposit refunded and understand your rights as a renter.
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What Does My Security Deposit Cover?
A security deposit can cover a range of items that crop up during a tenant’s stay.
- Property damage: Property damage is the most common thing that landlords use a security deposit for. This damage must be beyond normal wear and tear. Landlords may use the security deposit to patch holes in the wall and fix carpet burns. They could also use it to replace any fixtures that were broken and more
- Missed rent payments: If you get into a habit of missing rent payments. your landlord may pull that money from your security deposit. You can’t expressly say to your landlord that you’d like to use your security deposit funds to pay rent this month. However, if you owe back rent at the time of vacating the property, your landlord may keep some or all of your security deposit on these grounds.
- Cleaning and key replacements: Any necessary professional cleaning services or replacements for lose housekeys can also be covered by your security deposit.
How Much Will My Security Deposit Be?
There isn’t a set rate for security deposits. Typically, there are state or local laws that place limits on the amount that a landlord can charge for a security deposit.
However, it’s common for the amount to be between 1-3 month's rent.
In the state of California, a landlord may charge three months' worth of rent as a security deposit for a furnished apartment. However, in the state of New York, landlords are only allowed to charge up to one month's rent for a security deposit. That’s the case regardless of the circumstances.
The Impact of Your Credit Score
In addition to state laws, tenants should be aware of their credit score before applying to an apartment. That can impact the security deposit rate that your landlord will charge you.
It’s common practice for landlords to perform background checks on prospective tenants. They do that to ensure that they don’t have a history of unpaid rent, evictions, or poor credit.
A good credit score can save renters money. However, a poor credit score may result in higher charges.
Laws Regarding Security Deposits
As we mentioned previously, some laws limit the rates that landlords can charge for a security deposit. However, many other laws pertaining to security deposits, too. Almost every state has laws regarding security deposits that are in place to protect renters and landlords alike.
These laws provide standards for security deposits. They govern different aspects of the deposits.
Those aspects include when the landlord must return them and what tenants have a right to know. They also include what landlords must do with them when they receive them.
1. Required Security Deposit Disclosures
Many states have laws to ensure that tenants understand what happens to their security deposit. In many cases, landlords place the full amount of the security deposit in a bank account Some states require that this account must accrue interest.
In some states, landlords must provide tenants with the name and address of the bank in which they’ll be storing the deposit, along with the amount they’re depositing there.
Landlords may also be required to pay tenants interest on their security deposits in certain circumstances. They can then deduct that from the rent or pay it in a lump sum when the tenant leaves.
However, this will vary from state to state. It’s important to do your due diligence and find out the laws in your state. That way, you won’t miss out on any money.
2. Security Deposit Deductions
Generally, the law states that security deposit deductions can be made if the tenant breaks the lease in some way or owes back rent, the landlord may also make security deposit deductions if the tenant is responsible for excessive damage to the property or needs key replacements.
Typically, landlords must provide reasons for the deductions to the tenant. In some states, landlords must provide notice of deductions before actually making them.
They must make repairs over replacements whenever possible. That way, they won’t overcharge tenants.
Finally, landlords are not entitled to a full security deposit if the amount of the deduction doesn’t meet the total deposit amount. If the deposit is $2,000 and deductions total to $900, then the tenant should receive $1,100 of their deposit back.
3. Refunding a Security Deposit
Landlords must refund security deposits after the tenant moves out of the property. There is usually a limit on how long a landlord has to give tenants their refund.
Once the inspection is complete, the landlord must produce a refund of the remaining or full deposit within a set time frame. This time frame varies from state to state. If a landlord doesn’t issue a refund in a timely fashion, the tenant may file a report to local authorities or sue.
What Happens to a Security Deposit Once It’s Paid?
After a security deposit is paid, the landlord usually places it in a bank account that nobody touches. It remains that way unless the landlord has reason to make deductions from the deposit. Once you move out, they will refund it, if applicable.
As a tenant, it’s your responsibility to ensure that you have proof that you’ve paid a security deposit. That especially applies if your landlord doesn’t supply you with one initially.
Ask for a record of this payment. That can be in the form of a receipt that your landlord or property manager should sign. Your receipt should detail how much you paid, what it was for, and the date that you paid it.
Speaking of the date that you pay your security deposit, make sure you pay it on time. A late payment at the start of your lease isn’t the best way to inspire confidence in your abilities as a renter.
What Happens If My Landlord Doesn’t Refund My Security Deposit?
If your landlord doesn't refund your security deposit, the first thing to do is to determine whether your landlord has a reasonable reason to withhold it. The guidelines for deductions are based on damages that are beyond “normal wear and tear.” So, it can be difficult to determine just what counts as excessive damage.
Your landlord should provide you with an itemized list of damages or lease violations that have resulted in your security deposit not being refunded. If you, your pet, or any of your guests are responsible for this damage, then you won’t have a good case against their refusal.
However, if you aren’t responsible, you have a couple of options. You can either write a demand letter to your landlord or seek legal advice about whether you can sue your landlord in small claims court.
These are more aggressive options. You should be sure to have a conversation with your landlord before taking any of these steps. Try to work out an amicable agreement if possible.
The Bottom Line
Security deposits are a great tool for landlords to protect themselves against any damages or lease violations that tenants create. However, the law protects tenants on the issue of security deposits. A savvy renter should ensure that they know their rights before entering a lease agreement.
If you want to ensure that you get your security deposit back at the end of your lease, do your very best to not cause damage to the property. Uphold your rental agreement. If you follow these tips, then the law will be on your side if you experience any security deposit disputes. Happy renting!