security deposit

{{See also|1918–1920 New York City rent strikes#Leases}}

The United States Supreme Court ruled in Commissioner v. Indianapolis Power & Light Co. (1990) that a deposit differs from an advance payment because the depositing party has dominion over the funds and retains the right to insist upon repayment in cash. On the other hand, the party making an advance payment retains no right to insist upon the return of the funds as long as the recipient fulfills the contractual agreement.Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203 (1990)

The security deposits required by many residential landlords of their tenants are the source of much dispute and litigation. Many states and municipalities have enacted laws that specifically regulate the landlord's ability to withhold tenant security deposits after a tenant moves out. Some states and cities require that interest be paid to the tenant as it is earned on the security deposit. The rate of interest earned on security deposits typically changes each year. Currently{{when|date=January 2023}} this rate is set at .06% in the state of Connecticut.{{Cite web|date=2022-01-18|title=Landlord's Guide to Security Deposits {{!}} CT Edition {{!}} Updated 2022|url=https://www.robertcwhite.com/everything-landlords-need-to-know-about-security-deposits-ct-edition|access-date=2022-02-07|website=www.robertcwhite.com|language=en}} The rate is .01% in Chicago, Illinois, but this rate is only payable on buildings with a certain occupancy threshold.{{Cite web |last=JAbdilla |date=2020-02-27 |title=Security Deposits - The 5 Key Questions for Chicago |url=https://thechicagolandlawyer.com/2020/02/27/security-deposit-law/ |access-date=2023-03-13 |website=The Chicagoland Lawyer |language=en-US}}

A landlord's deductions from a tenant's security deposit must be reasonable. The landlord may make deductions for missing rent payments and for damages beyond ordinary wear and tear, which is the subject matter's depreciation or deterioration in value by reasonable and ordinary use by the tenant. Examples of non-deductible wear and tear include: paint retouching, minor cleaning, small tack holes, and nicks and scratches. Examples of deductible damages include large or excessive holes in the wall, carpet stains, and broken doors and windows.{{cite news|last1=Sparks|first1=Dana|title=What Is Normal Wear & Tear on a Rental Home?|url=http://homeguides.sfgate.com/normal-wear-tear-rental-home-1914.html|access-date=21 July 2017|agency=SFGate|publisher=Hearst Communications, Inc.}}{{cite web|title=Tenancy deposit deductions your landlord can make|url=https://england.shelter.org.uk/housing_advice/tenancy_deposits/tenancy_deposit_deductions_your_landlord_can_make|website=Shelter|publisher=Shelter England|access-date=21 July 2017|date=30 June 2016}}

If a landlord wrongfully withholds a tenant's security deposit, the tenant may be entitled to additional damages beyond the amount of the security deposit. These may include statutory damages for violation of a local statute on consumer collection practices, damages that may be two or three times the amount of the deposit (in some states, such as California), consequential (resulting) damages, interest, and in more rare instances punitive damages.{{cite news|last1=Raskin-Zrihen|first1=Rachel|title=The importance of knowing your rights|url=http://www.timesheraldonline.com/article/ZZ/20081027/NEWS/810279872|access-date=21 July 2017|agency=Times-Herald|date=27 October 2008}}{{cite news|title=Is Tenant Entitled to Punitive Damages?|url=https://www.latimes.com/archives/la-xpm-1993-10-10-re-44356-story.html|access-date=21 July 2017|agency=Los Angeles Times|date=10 October 1993}}

In the United States, Washington, DC, Alaska, Illinois, and Wisconsin have notably more tenant-friendly legislation than states like Indiana or Michigan, for example. The cities of Madison, Wisconsin, and Chicago, Illinois, have substantially greater protection of tenants' security deposit rights than the surrounding areas.Madison's General Ordinance Chapter 32 and Chicago's Residential Landlord Tenant Ordinance.

Studies have shown that landlords often improperly withhold security deposits after tenants move out, and often get away with it because it's too much trouble to fight.{{cite web |author1=Tenants Together |title=No deterrent: Improper security deposit withholding in California |url=https://www.cityofberkeley.info/uploadedFiles/Rent_Stabilization_Board/Level_3_-_General/8.a.11_Tenants%20Together%20Report%20on%20Security%20Deposits.pdf |website=City of Berkeley |access-date=24 March 2022 |date=2 May 2013}}

The recent{{when|date=January 2023}} changes to the condominium and cooperative laws in New York have created limits for the regulations behind security deposits. Cooperative boards can no longer charge more than one month of prepaid maintenance and another month's maintenance as a security deposit restricting the amount to be owed before moving in.{{Cite web|url=https://cooperator.com/article/recent-changes-to-co-op-condo-laws/full#cut|title = Managing the Impact on Your Community - Recent Changes to Co-op & Condo Laws}}{{Cite news|url=https://www.nytimes.com/2019/06/21/nyregion/rent-laws-new-york.html|title = How New Rent Laws in N.Y. Help All Tenants|newspaper = The New York Times|date = 21 June 2019|last1 = Ferré-Sadurní|first1 = Luis}}

In states which are more tenant-friendly, like Connecticut, the amount an owner can charge for a security deposit in any property is limited to the equivalent of two month's rent. This limit is reduced to one month's rent for tenants age 62 and over.

In England and Wales, a security or rental deposit may be documented in a rent deposit deed, which is a separate agreement supplementary to a lease agreement.England and Wales High Court (Chancery Division), [https://www.bailii.org/ew/cases/EWHC/Ch/2019/2932.html Shinners & Anor (Joint Administrators of London Bridge Entertainment Partners LLP) v London Trocadero (2015) LLP [2019] EWHC 2932 (Ch)], delivered 12 November 2019, accessed 27 May 2024

In metropolitan cities of India{{Cite web|date=2021-11-15|title=Dafabet Withdrawal and Deposit India in 2022|url=https://dafabet-app.in/withdrawal-deposit/|access-date=2022-01-13|language=en-IN}} like Chennai, Bangalore, Mumbai or others, there is security deposit to be given upfront to the landlord before renting/leasing an apartment. This security deposit amount can range anywhere from 3– 11 months, depending upon city's norm. With rentals soaring high in metropolitan cities, this amount becomes exorbitant.{{cite news |last1=Das |first1=Avik |title=Bengaluru pays highest rental deposits |url=https://timesofindia.indiatimes.com/city/bengaluru/bengaluru-pays-highest-rental-deposits/articleshow/67391234.cms |work=Times of India |date=5 January 2019 |archive-url=https://web.archive.org/web/20190108202423/https://timesofindia.indiatimes.com/city/bengaluru/bengaluru-pays-highest-rental-deposits/articleshow/67391234.cms |url-status=live |archive-date=8 January 2019 |location=Bengaluru}}

Security deposits offer landlords a layer of financial protection against potential losses due to tenant-caused damages or unpaid rent. {{cite web |title=Everything You Need to Know About Security Deposits |url=https://circlepe.club/blog/what-is-security-deposit |website=CirclePe |access-date=21 February 2025}}

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• Collateral (finance)
• Damage deposit
• Deposit (finance)
• Earnest payment
• Escrow
• Key money
• Lease

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{{Reflist}}

• Donaldson, Samuel A. Federal Income Taxation Of Individuals: Cases, Problems and Materials (2nd ed.). St. Paul: Thomson West, 2007. pg. 145.

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Category:Income taxation

Category:Renting

Category:Real property law