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In Michigan, the majority of residential rental contracts demand a security deposit. This is a monetary sum, typically the equivalent of a single month's rent, that is meant to cover property damage and lessen the financial burden if a renter breaks the lease agreement without paying.

MI Comp L § 554.604 regulate security deposits in the state to protect the rights of both parties. Because we know that it can be difficult to understand legal terminology, we have created a simple guide to these laws to help ensure that you are always compliant.

Restrictions

The maximum amount a landlord may collect as a security deposit in Michigan is the equivalent of one and a half months' rent.

Until the renter is informed otherwise in writing and no later than 14 days after receiving written confirmation of the landlord's address and name for receipt of the notice, a Michigan landlord may not request a security deposit. The name and location of the surety or regulated financial institution must also be provided.

Holding Deposit

The security deposit must be retained for the renter's benefit in a financial institution that is subject to regulation. As an alternative, the homeowner may provide the Secretary of State with a surety or cash bond.

The Attorney General will accept a surety bond prepared by a registered surety business in Michigan state to hold a deposit of up to $50,000. It can also be used to secure 25 percent of any sum over $50,000.

Pet Deposits

In Michigan, landlords are permitted to request an additional amount used for any destruction the tenant's pets may cause. However, this extra security deposit may not be collected for any service animals that are brought onto the property if the tenant has a disability.

This right to equal opportunity to housing is regulated by the Federal Fair Housing Act.

Allowable Deductions

Landlords in Michigan may only make deductions from security deposits once the lease period is over or it has been terminated prematurely, except if a cash or surety bond has been posted for it. Additionally, the tenant's security deposit may only be applied to the following:

  • Repair costs for a rental property that has sustained damage outside of normal wear and tear
  • Unpaid rent
  • Outstanding utility expenses
  • Rent that is still due if the lease is terminated early

Normal Wear & Tear

Understanding the difference between normal wear and tear and actual damages is important. General wear and tear refer to the natural damages that occur as a result of regular use of the property. Fittings may age and break, or door handles may come loose over time.

Damages, on the other hand, are accidental or negligent damage caused by the tenant of their guests. These expenses may be deducted from the security.

Returning Deposit

After the renter vacates the rental property, the landlord has 30 days to reimburse the security deposit.

Suppose there are deductions from the tenant's security deposit are reduced. In that case, the landlord is required to give the renter notice of damages that includes an itemized summary of the reductions and their actual or projected costs.

A money order or check for the balance of the security deposit must be included on the itemized statement.

Landlords in Michigan have to include the following statement in the notice:

“You must respond to this notice by mail within seven days after receipt of the same; otherwise, you will forfeit the amount claimed for damages.”

This excerpt must be bolded and included in a 12-point font that is a minimum of four points larger than that of the remaining text.

The Tenant Can Dispute the Charges

After being given the notice of damages, the renter then has seven days to contest the charges listed. If he or she does not, it will be assumed that they have accepted them.

Within four days of the lease's expiration, the tenant must give written notice to the landlord of their new address. Moreover, the landlord is not required to provide this notice of penalties if a forwarding address has not been provided.

Handling Disputes

The landlord must either restore the appropriate sum or file a lawsuit for a monetary judgment if the tenant opposes the landlord's withholding of any portion of the security deposit within 45 days of the date that the tenant vacates the property.

Furthermore, if a landlord in Michigan retains the security deposit after failing to file the lawsuit or succeeding in it, they may be held liable for twice as much money. This will also apply in cases when the landlord retains the entire security deposit but neglects to give the tenant a notice of costs.

However, landlords do not need to bring a lawsuit if the following conditions apply:

  • A forwarding address was not provided
  • These deductions were formally accepted in writing
  • The tenant missed the deadline to contest the allegations
  • Rental payment arrears are enough to cover the amount withheld

Keep in mind that if the landlord did not give the mandatory notice after the tenant moved in, he or she would still be compelled to pursue the case even if the renter failed to submit a forwarding address.

Checklists

According to Michigan security deposit law, landlords are required to provide their tenants with two blank copies of the Inventory Checklist before the tenant assumes possession of the rental unit. The renter has to send a copy of the completed checklist to the landlord.

Additionally, the landlord must fill out a termination inventory checklist at the conclusion of the lease, which will record any additional damages. At the start of the first page of this checklist in 12-point bolded text, this excerpt must be included:

"You should complete this checklist, noting the condition of the rental property, and return it to the landlord within 7 days after obtaining possession of the rental unit. You are also entitled to request and receive a copy of the last termination inventory checklist, which shows what claims were chargeable to the last prior tenants."

The state of those objects at the beginning of the tenancy and at the conclusion of it will be attested to by these checklists. When drawing up the inventory checklist, be sure to include the following:

  • Information about the property's present state.
  • All fixtures and assets that belong to the landlord and are in the rented property 
  • A joint signature from both parties indicating their acceptance of the inventory checklist

Final Thoughts

Michigan security deposit laws are designed to protect both the landlord and tenant. Now that you understand them, you're ready to successfully lease your rental unit. You can check out DoorLoop for additional help with your business. The software offers intuitive features, such as accounting, property listings, and so much more. Try it out today with a free demo!

FAQs

What happens if a landlord fails to return the security deposit and send a notice of damages to the tenant's forwarding address?

Security deposits must be refunded in full right away to the renter if it hasn't been returned, along with the notification of damages, within 30 days. Moreover, landlords in Michigan may have to pay up to twice the security deposit amount if he or she is found to be responsible for non-payment of a security deposit.

Can security deposits be used to pay the final month's rent?

There are now laws restricting the use of the security deposit for payment of the final month's rent, so if this is allowed in the lease, then you may accept the security deposit for this purpose.

Is there a maximum security deposit amount in Michigan?

Yes. The amount that landlords may charge for a security deposit is capped at one and a half times the monthly rent. This can be used to cover unpaid rent and other damages.

Where can I find more information about Michigan security deposit laws?

The applicable laws can be located at Michigan Compiled Laws, sections 554.602 to 554.616, if you wish to learn more about Michigan security deposit law directly from the source or need to quote it. Browse the Library of Congress's legal research or the Michigan Legislature website to read state legislation.

What happens to the tenant's security deposit if the rental unit is sold?

If the rented property is sold, the previous landlord will still be responsible for the security deposit unless one of the following three things occurs:

  • The former landlord passes the security deposit to the new owner and mails a letter to the renter notifying them of the change and providing the new owner's name and physical address
  • An amount equivalent to the security deposit is deposited at a financial institution, or the new owner posts a bond
  • The security deposit is returned 

After the security deposit is transferred to the new owner, he or she will be responsible to fulfill the obligations pertaining to it.

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Resources

  1. https://law.justia.com/codes/michigan/2021/chapter-554/statute-act-348-of-1972/section-554-604/
  2. https://www.legislature.mi.gov/(S(aearbjfjjpuxgmujyy3vmsss))/mileg.aspx?page=home
  3. https://www.loc.gov/law/help/guide/states.php
David Bitton

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!