Security Deposits

Security deposits are an up front payment to an owner. The purpose is to provide the owner a means of covering potential damages. Two popular uses are for property and car rental. Security Deposits are regulated by the states. Regulations describe how they are handled, amounts, timing and more. Often the state requires an itemized description of any deductions and possibly receipts to prove these amounts. There is also a time limit for which the deposit must be returned.  This section focuses on residential property security deposits with a final section related to car rentals. Security deposits are different than downpayments.

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In this context, a security deposit is a sum of money paid by a tenant to a landlord which is held in a trust. This trust is usually a bank account but could be a 3rd party independent escrow account. A 3rd party account usually cost money to arrange and can be the value (or greater) of the deposit itself. This can offer more peace of mind for the tenant to ensure the deposit is not mishandled. This purpose is to protect the property owner against default by the tenant and cover any cost of repair any damages or missing items. 

Amount and Where Retained

At a minimum the rental contract should describe the amount of the deposit and where the deposit is being retained. There are usually limits on the amount of this deposit (e.g. 1-2x the monthly rent amount is common) and could be increase if the premises is furnished. This amount is often near one month’s rent or one month’s total obligations (if tenant is responsible for utilities, etc.).

In some states the requested security deposit is allowed to increase if the rent increases and depending on the state, the landlord must put the security deposit in an interest-bearing account and the tenant is entitled to the interest earned (however this is usually a very small amount).

In some cases, the landlord may ask for an additional deposit if there is a pet. In addition, the monthly rental rate could be higher or one or the other. The point is be prepared for extra fees if you have a pet. Furthermore, these fees may depend on the type of pet(s) involved. 

Returning the Security Deposit

Upon return of the deposit, many states require an itemized description of any deductions and possibly receipts to prove these amounts. There is also a time limit for which the deposit must be returned to the tenant which is usually after a lease ends or a new tenancy begins on the premises, whichever comes first. As the tenant, make sure the landlord has a way to refund any amount that you are owed which means an address to mail the funds.

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To protect your security deposit tenants should complete a checklist with the landlord of all items included with the lease which could be anything from blinds, furniture, TV’s, tools, pots/pans, and more. If these items are missing or damaged at the end of the lease (beyond normal wear & tear) then the landlord likely has a right to deduct these amounts from your returnable amount.

Make sure to get a copy of the checklist. Tenants are advised to take pictures or videos but it’s best that both parties share this same baseline evidence (checklist, pictures, videos, comments, etc). 

If you feel that you have been shorted the proper amount on your refunded security deposit, there are number of legal firms that can assist. But this isn’t free so it’s important that any legal fees you incur are also recoverable. If you’re seriously considering the legal route, you may want to explain this to the landlord to give them one more opportunity to make it right for you. This could save you hassle and the risk of not getting some or all of your deposit.

Normal Wear & Tear 

Normal wear & tear is a subjective term but some common examples are are minor cleaning, paint retouching, small holes, nicks and scratches. You should not be deducted for items that are considered normal wear and tear. In some cases, landlords can deduct amounts from a security deposit for missed rent payments. Be aware that damages that exceed the amount of the security deposit open up the possibility for the landlord to sue the tenant and this could cost more time and money. 

Review State Laws

Your state’s website should have a section that explains their laws around security deposits. With a little research on social media or other websites you can ask questions and find answers (be careful to weigh the validity of the responses).


Landlords need to protect themselves by ensuring to follow the latest state requirements. Any gap found within a contract could put your rights to keep some or all of this deposit, possibly before the lease expires.

As mentioned above for the tenant, do a walkthrough and create a checklist of items included. You may want to take pictures or video as evidence. Keep in mind normal wear and tear is usually expected and this isn’t typically a valid justification for a deduction on the refund of a security deposit. Failure to comply can result in paying back an amount that exceeds the security deposit. 

Review State Laws

In some states the requested security deposit is allowed to increase if the rent increases. In some states the landlords must put the security deposit in an interest-bearing account and the tenant is entitled to the interest.


Car Rentals

Car rental companies usually require a deposit of a couple hundred dollars to protect themselves against possible damage to the vehicle. This deposit amount depends on the vehicle and other criteria. The vehicle is checked for damage upon returning the car. If damage is found, funds are deducted from the deposit to cover the repairs and the loss of value and in some cases the security deposit isn’t enough and more charges will be added.

Thorough Contract Review

The best protection for both parties is to review of the vehicle condition before the rental contract is signed. This is standard practice in most cases but is often taken for granted or rushed and if there are any alleged damages it becomes a blame game.

Make sure to note any dents, scratches, stains, cracks, or anything the car company could claim was your fault.  Pay attention to how the vehicle drives when leaving the lot. Closely monitor the gages and test some of the functions and features. Especially if they are features that you paid for such as satellite radio (an electronic toll pass may be impossible to test).

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