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The return and collection of security deposits are regulated under the TN Code 66-28-301. Overall, the Tennessee security deposit law gives a set of rules that property managers and Tennessee landlords must follow to protect everyone. Typically, the tenant's deposit amount is listed in the lease agreement. Let's learn more about how to handle a security deposit.

Maximum Charges

According to security deposit laws in the state, there's no security deposit limit listed, so Tennessee landlords may charge whatever they see fit.

There's an exception to the security deposit law; the Tennessee Landlord-Tenant Act doesn't apply for counties that have fewer than 75,000 residents based on the last Federal Consensus. Therefore, you should check local county ordinances to determine what your maximum security deposit can be.

Likewise, landlords may request an additional pet deposit on top of the tenant's deposit as long as it isn't a service animal.

Deposit Holdings

Landlords cannot mix a tenant's security deposit with other money. Instead, landlords must place security deposits from tenants into a separate account that's only used for handling security deposit funds and must be in a bank or recognized lending institution.

Therefore, if the landlord fails to comply with the requirement, they cannot make deductions from that security deposit.

Once the tenant signs the lease, the landlord must inform them by written notice or orally of the details about how the security deposit will be held. However, the landlord doesn't have to list the separate account number.

Allowable Deductions

When the lease ends, the landlord can deduct these amounts from the security deposit:

  • Cost of damage not found during inspections
  • Other amounts the tenant refuses to pay
  • Unpaid rent

Damages found to the unit after the inspection wasn't included in the list of charges. Therefore, they're only chargeable if identified within 30 days from the tenant vacating the premises or can be charged seven days after a new tenant takes possession.

Inspection Report

Security deposit charges are based on an inspection in Tennessee at the end of the tenancy. Whether the landlord or tenant requests the end of the lease, the landlord must give five days' notice to vacate and then supply a written notice for the tenant's right to be present for the inspection, which must happen during normal business hours.

However, the landlord can require the inspection to happen after the tenant vacated the unit, though it should occur four days or sooner after the tenant leaves.

After the inspection, landlords should provide a comprehensive list of damage for the tenant's behalf. Both parties have to sign the list, which serves as evidence if necessary.

If the tenant doesn't agree to some charges, they can indicate what they have an issue with. However, future disputes are only limited to those things.

Likewise, if the tenant requested to be there for the inspection and didn't show up, the tenant loses their right to dispute any damage found. Similarly, the tenant doesn't have the right to be present if they:

  • Abandon the unit
  • Don't respond to notices of their right to be present
  • Vacate the unit
  • Fail to show up for the inspection

The landlord is required to provide the checklist, or they forfeit their right to deduct money from the security deposit for damage.

Wear and Tear

Landlords cannot include normal wear and tear damages when using the security deposit for issues. This refers to small problems happening because the tenant naturally used the property. It includes:

  • Gently worn carpeting
  • Fading flooring and wall paint
  • Loose door handles
  • Stained bath fixtures
  • Mold and dirty grout

Damage, on the other hand, means the destruction of the property because of negligence, carelessness, or abuse during the tenancy period. It negatively impacts normal function, value, and usefulness and includes:

  • Pet damages
  • Broken tiles
  • Broken windows
  • Missing fixtures
  • Holes in the walls

Returning Deposits

Tennessee landlords must return the tenant's security deposit, or the part left, after appropriate deductions within 30 days from the tenant leaving or 60 days when the landlord never receives a response to get the refund.

When the landlord doesn't get a response from said tenant 60 days after sending a notice, the landlord can remove the money from its separate account and put it into the primary bank account with no liability.

If the tenant leaves without providing a forwarding address, the landlord should send refund notices to the last known address or a reasonably determinable one. Therefore, the landlord should exert a reasonable effort to find the tenant's new location. Likewise, that 60-day period begins once the landlord does this, regardless of whether it's the correct address.

Tax Filings

Security deposits aren't necessarily considered income once received by the landlord. The IRS recommends you don't count it as income if you must return it later. In fact, the only time it's taxable income is when you don't have to refund it, such as for unpaid rent, and that happens when it was forfeited.

The IRS offers rules for whether you should report the deposit as income and when:

  1. If the tenant didn't pay rent or breached the lease, the amount you keep is declared as income when it was applied or forfeited.
  2. If the security deposit is used to cover expenses and a landlord's estimated costs, they must include the repair costs as expenses.
  3. If the parties agree to use the deposit for the final month's rent, the landlord must include it as taxable income when it's received.

Additional Regulations

  • Receipt Requirements - The landlord or property manager doesn't have to give a written receipt for the security deposit.
  • Interest Payments - Landlords don't have to pay interest to the tenant on the deposit, though this can be done.
  • Fire or Casualty Damage - If the unit or property is damaged/destroyed by fire so badly it cannot be repaired or used, the landlord must give the security deposit back.
  • New Owner Responsibility - If the landlord sells the property during the lease time, they are relieved of any liabilities concerning the deposit if they transfer it to the new owner and send written notice to the tenant of the transfer. The tenant's written notice to vacate could come forthwith.

Conclusion

It's sometimes confusing to know how to get a security deposit from a tenant and what you can do with it. You've learned the Tennessee security deposit laws, which helps you understand everything a bit better, though you must still research Landlord-Tenant rights in Tennessee.

Owning a rental property can be a great way to earn money, but you may have to pursue legal action if there are disputes between you and the tenant, such as an eviction.

FAQs

How Much May a Landlord Charge as a Tenant's Security Deposit?

There's no maximum amount a landlord can charge as the deposit. Tennessee law puts no limits on it, though it should be presented within the rental agreement so that both parties understand the rules.

Can Landlords Use the Tennessee Security Deposit for the Last Month's Rent?

Generally, the tenant cannot use the security deposit as their last month's rent unless the lease agreement states this is possible and appropriate.

What Can Landlords Deduct from Security Deposits?

Landlords can legally deduct unpaid rent, the cost of damage to the unit listed on the inspection report, and other amounts from the deposit owed to the tenant.

What's Normal Wear and Tear?

Normal wear and tear includes deterioration that happened from regular and appropriate use of the rental unit. The tenant was not careless, negligent, or abusive to the space. This applies to the other members of the household and guests.

Can Landlords Charge Cleaning Fees in Tennessee?

No, the landlord isn't allowed to charge cleaning fees unless it's in the written rental agreement. Even if that's the case, landlords cannot make charges due solely to wear and tear.

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Resources

  1. https://www.findlaw.com/state/tennessee-law/tennessee-security-deposit-laws.html
  2. https://www.liveabout.com/tennessee-security-deposit-law-2125092
  3. https://www.mrclarksville.com/blog/tennessee-security-deposit-laws.html
  4. https://getjerry.com/renters-insurance/tennessee-state-security-deposit-laws
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!