How Big Can the Security Deposit Be?

How much do you charge each tenant as a security deposit?  How much can you charge according to state law? Nearly every landlord knows the answer to the first question, but fewer know the answer to the second one.  While you’re not required to charge the maximum security deposit allowed by law, you are prohibited from charging more than the maximum security deposit.  Since few tenants know what the rules are in each state, it’s important to understand them and protect your interests wherever your properties are located.

States Determine Amount

State laws vary regarding how large the security deposit can be, and a number of states have no limit for security deposits.  Several states limit the size of the security deposit, but make exceptions for certain conditions.

For example, states like Hawaii, Maryland, Rhode Island, and the District of Columbia limit the amount of a security deposit to one month’s rent – no exceptions.  However, landlords in these locations may be able to charge other non-refundable fees, like pet fees or cleaning fees, depending on the circumstances; talking to an attorney in your area can provide useful insight on deposits and fees.
Michigan limits the security deposit to one and one-half month’s rent, while Virginia, Maine, Maryland, Missouri, Iowa, and Arkansas set the limit at two months’ rent.

States that make exceptions do so for several reasons.  Alabama specifically exempts pet deposits from its one-month’s-rent limit, while California allows landlords to charge a security deposit equal to three months’ rent for a furnished unit and an additional one-half month’s rent to tenants who bring waterbeds onto the premises.  Kansas doesn’t exempt pet deposits but does allow the security deposit to be increased by an amount equal to one-half of a month’s rent for pets.

What To Do Once You Have the Security Deposit In Hand

Consult your state’s rules for handling security deposits.  In most states, a security deposit is seen as the legal property of the tenant even though it is in the possession of the landlord.  This means that you may have certain obligations regarding where and how you store, track, and manage security deposit funds.

Some states require security deposits to be returned along with the interest they have earned while they were in the landlord’s possession.  If your state has such a requirement, a system for accurately tracking, managing, and paying interest is a must.

Don’t forget to meet any state deadlines for returning a security deposit or itemizing damages once your tenant moves out.  Completing these tasks on time helps protect you if a tenant decides to sue, and it ensures your own business is run efficiently.

Note: This article is not intended as legal advice and should not be taken as such.  If you need help with a specific legal issue or question, contact an attorney who is licensed to practice law in your area.