Do you know what is a security deposit? Read on for a security deposit definition and a full explanation in plain English.
Security deposit definition: Security deposit is a sum of money given in advance by the tenant to the landlord. The purpose of a security deposit is to ensure that the tenant carries out his or her lease obligations.
Failure of the tenant to carry out lease obligations will result in security deposit deductions. Deductions can be made by the landlord in the following situations:
1. The tenant fails to pay part or all of rent owed.
2. Property damage is caused by improper use or negligence by the tenant, listed occupants or guests.
3. Cleaning expenses incurred by the landlord at the end of the lease.
For a residential lease, security deposit is refundable - It must be returned to the tenant after any allowed deductions. There may be certain exceptions such as non-refundable pet deposits.
Most states have laws limiting the maximum amount of security deposit to 1 to 2 month's rent - Click here to see the maximum security deposit amount for every U.S. state.
Since the law considers the landlord to be a safe keeper (rather than the owner) of the security deposit, some states require the landlord to hold the deposit in a separate interest-bearing account. At the end of the lease, the landlord must return the deposit plus any interest accrued to the tenant.
To see if the landlord is required to return security deposit with interest, Click here to view the security deposit laws for every U.S. state.
There's another important point we wish to highlight: You cannot take security deposit as last month's rent... even with the tenant's consent. This common malpractice is detrimental for both parties: The landlord may not be able to make security deposit deductions and it may blemish the tenant's payment record as well.
Now that we know what is a security deposit, let's find out if you should ask tenants for a security deposit: