When a landlord or owner allows a tenant to rent an apartment in their building, there is inherent risk involved.
No matter how strong the tenant’s rental history or how high their income is, renting an apartment to a new tenant is never foolproof.
There is always the risk that the tenant could damage the apartment, default on their rental payments, and more.
This inherent risk is the exact reason security deposits are often required for new renters.
A security deposit is a sum of money paid at the start of a lease that is stored away as a form of collateral.
This deposit stands as a financial cushion should the tenant damage the apartment or default on the lease. Though renters often aren’t a fan of paying a security deposit, it protects them as well.
Without a security deposit, renters could be liable for an array of variable costs upon moving out.
Are security deposits legal? And how do they differ between states?
The short answer here is yes, though it's important to know both:
- How to handle deposit funds, and
- Your specific state and local laws regarding when you can keep funds after the end of a lease
The laws around what is allowed and what is not when it comes to security deposit collection vary from state to state.
For example, the legal sum of funds that can be paid as a security deposit varies.
Most states allow landlords to charge what they assess as reasonable for a security deposit. Still, most state legislation caps this at a deposit of one month’s rent.
When it comes to a security deposit, there are a few variable conditions of the deposit that can change from state to state. These features include:
- Is a deposit account required? A rental escrow is a specific bank account established by a court order or local municipality or rental agreement between a property owner and a tenant. The account holds specific funds, like the deposit, for safekeeping.
- Is the security deposit capped at a specific amount? In some states, you may only charge up to a specific amount. In others, no amount is specified.
- What can you deduct deposit funds for? Security deposit funds are routinely deducted for apartment damages (beyond normal wear-and-tear), unpaid utilities, or violations. However, what qualifies for a security deposit deduction can vary based on location.
- What is the deadline for returning the security deposit funds? Any unused security deposit funds must be returned to the renter upon move out. However, how long the landlord has to return the funds can vary based on location.
Security deposit laws by state
As mentioned above, security deposit regulations can change from state to state.
Though many laws are similar, it’s important to know the laws in your state if you’re a landlord or property manager.
Failing to follow these laws, even if unintentional, can make you vulnerable to litigation.
Below, you’ll find examples of some states current deposit laws, and find resources to learn more about your state’s laws.
Security deposit laws in Florida
If you manage or own a rental property in Florida, it’s wise to get familiar with the deposit laws in place.
In Florida, an escrow account is required to hold the security deposit funds. The account must be held with a Florida-based institution, and the resident must accrue interest on money held.
Florida has no specific guidelines for how much money can be collected as a deposit.
Deposit laws in Florida allow the money to be used for repairs, minus normal wear and tear. Security deposit funds in Florida can also be deducted for unpaid rent or lease violation fees.
Once a resident moves out, the landlord has 30 days after the rental agreement ends to return any unused deposit funds. If there are no deductions to be made, the deposit must be returned within 15 days.
Security deposit laws in California
California is a popular spot for young renters, and therefore a great place to own or manage rental property.
Learning the deposit laws in California is important to ensure you are abiding by the laws in place.
California law doesn’t require an escrow account for security deposits. California law prohibits a tenant's security deposit from equaling more than 2 months' rent, except in the case of fully furnished units.
If the unit is fully furnished, a maximum deposit of 3 months' rent is allowed. The deposit funds can be deducted for repairs beyond normal wear-and-tear, lease violations, and cleaning costs.
According to California deposit laws, any unused deposit funds must be returned to the renter within 21 days of the lease end date.
Security deposit laws in Texas
Texas is a hot spot for multifamily development and eager renters right now. Like all other states, Texas has its own deposit laws that must be adhered to.
According to Texas law, there are no official requirements that the deposit be held in escrow. There are also no specific guidelines on how much money can be collected as a deposit.
In Texas, deposit funds can be deducted for repairs beyond normal wear-and-tear, unpaid rent, and lease violations.
The deadline to refund the deposit is 30 days from the lease end date unless the lease or rental agreement requires an advanced notice to vacate and the tenant fails to provide adequate notice.
How to find security deposit law information by state
After reviewing the two examples above, it’s clear how deposit laws might look very different from state to state.
Some things are the same across all states, such as never being able to hold funds for anything that could be considered normal wear-and-tear.
However, in general, you can't assume one state’s deposit laws will be the same as the last.
Luckily, there are resources such our security deposit laws for all 50 states:
You can see each state’s specific deposit laws and exceptions, so you know what your state's specific security deposit laws are.
In addition, there are other useful resources such as landlord-tenant laws for each state as well as eviction laws.
Is a pet deposit different from a tenant's security deposit?
A pet deposit differs from a security deposit in many ways.
Pet-friendly apartments assume not only the risk of the renter, but the risk of their furry family member, which often carries a heightened risk of damage to the unit.
A pet deposit is similar to a tenant's security deposit in that it’s a one-time fee paid at the start of a lease to secure the home against potential damages.
The pet deposit is set aside for animal-specific damages, such as nail scratches or urine damage.
Like a security deposit, the pet deposit is refunded if no pet-specific damages are found in the home upon move-out.
Pet deposits cannot be used interchangeably with security deposits. This means a pet deposit can not be put towards unrelated costs, such as lease violations.
Pet deposit requirements and limits can vary from state to state, just like other deposit policies.
In most states, landlords are prohibited from charging a pet deposit if the pet is a registered service or emotional support animal.
The tenant must provide the landlord with adequate proof that the pet is a registered service animal.
As long as that paperwork is provided, landlords are prohibited from charging the tenant fees for their pet. This goes against disability law in most states.
Though charging a pet deposit is a savvy and smart move for landlords, you must be careful to follow the laws and guidelines for pet deposits in your state.
Can you withhold deposit funds when a tenant breaks your lease agreement?
One last but common question is whether you can withhold deposit funds if and when a tenant breaks their lease early.
It's one of the more difficult landlord-tenant issues to deal with as it can mean a decent loss if you're not able to fill the property again quickly.
Fortunately, you can recoup some of your losses with the right protections in place.
If you have a tenant that vacates a rental unit before their rental period is up, so long as you have the correct lease break clauses in your agreement (such as tenant written notice requirements), you can charge them the corresponding early termination fees.
These fees come from the tenant's deposit, allowing you to recoup some of the loss of losing a tenant early before their lease agreement is up.
Just make sure to see the security deposit returned after subtracting those fees, as however much of their security deposit remains must be given back to the tenant after those fees are collected, just like normal.
Check your rental agreement– and handle your security deposits correctly
Security deposits provide landlords with the collateral they need to reduce risk on rented units.
By requiring a security deposit, landlords make an effective financial cushion in the event of major damages or a lease default.
Deposit laws vary from state to state, and therefore every landlord or property manager should carefully adhere to their state’s policies.
Not only by having the right written lease clauses but also by way of your deposit handling process. If a landlord fails to do so, they can end up in hot water.
All in all, security deposits are an effective way for landlords and property managers to reduce the inherent risk that comes with renting a unit, as long as the laws are adhered to.