Collecting a Security Deposit: What’s Legal and What Isn’t
You should always get a security deposit before you turn over the apartment keys to a new tenant. That’s just being a responsible landlord, and it protects your interests if the tenant damages something. But how much can you realistically ask for? Are there times when a bigger deposit is legal? There’s really no blanket answer to that question, because each state can set its own rules. Here are some things to look for when you’re considering how much of a security deposit to require, so you don’t end up on the wrong side of the law.
Always base your security deposit on the laws of your state. If your state’s landlord-tenant laws say you can collect an amount up to 1.5 times the amount of the monthly rent, then that’s the biggest security deposit you can ask for. Don’t try to ask for more than that, or accept it if it’s offered. The tenants could come back on you later for that, and you wouldn’t have a legal leg to stand on. That can put you at risk of a lawsuit, and you may have to pay your tenant’s legal fees, too.
In some states, you can only collect a deposit equal to the amount of rent you’re charging per month, but you may be able to legally ask for more money by requiring the first and last month’s rent plus the security deposit. Just make sure your local laws allow for that practice. If you’ve read the law but you’re still not sure whether you understand it, it’s a good idea to check with an attorney who can help you clear up any confusion. That will give you peace of mind, and help you make sure you’re following the right rules.
You also have to make sure your security deposit collection procedures are fair and equal. There are circumstances where you can ask for a higher deposit – up to your state’s cap – such as if the tenant has bad credit or an unstable job. Whatever criteria you use to determine a security deposit has to be used across the board, though. If you arbitrarily ask for a higher deposit for one tenant (because you don’t like them very well, for example), you can get into legal trouble for doing that. You don’t have to rent to everyone who applies, but you do have to be fair to the people you choose to rent to.
As long as you have established, verifiable criteria when it comes to the way you collect deposits, and you base it on credit scores, length of employment, or related factors, you can generally protect yourself from problems with the landlord-tenant rules in your state. The single most important thing is that you know the law. The second most important thing is that you apply that law fairly to everyone who applies to rent an apartment from you. Then you can collect security deposits the right way, and protect both yourself and your tenants financially.