Fact Checked

What is a Tenant Deposit?

M. Lupica
M. Lupica

Typically, when renting a house or an apartment, the tenant will have to give the landlord a deposit in order to protect the landlord from having to incur unexpected costs in connection with renting. Though it varies from jurisdiction to jurisdiction, the holding of a tenant deposit has very particular regulations as to where it must be stored and in what type of account. Very often the return of the deposit to the tenant after the lease is over is a point of contention between tenants and landlords.

The tenant deposit is a measure of assurance for a landlord to ensure that he does not get stuck having to pay any unexpected costs after the tenancy ends. The stated purpose of a tenant deposit is to cover any damage caused by the tenant beyond normal wear and tear after the tenant moves out. Additionally it may be used for cleaning services if the tenant leaves the property in a dirty condition after turning it back over to the landlord. As a last resort, it may also be used to cover any unpaid rent if the tenant refuses to pay after leaving the property. Ideally, the tenant deposit should be given back to the tenant after the lease is over, but if the landlord has to use it for any of these purposes, he is generally required to give a detailed breakdown of the costs incurred for which the money that was not returned was used.

Businessman with a briefcase
Businessman with a briefcase

While it is typical that a full month’s rent be required as a security deposit, most jurisdictions have limits on the amount a landlord may require — generally set at the equivalent of two month’s rent. The landlord is usually required to place the deposit in an escrow account located within the same jurisdiction as the property and notify the tenant of the type of account and location of the deposit. Some jurisdictions require that any interest gained on the deposit during the life of the lease shall be paid to the tenant upon termination of the lease.

Often times, the return of the tenant deposit at the end of the tenancy results in dispute between the landlord and tenant. In the event that the landlord unjustifiably refuses to return the entirety of the money owed to the tenant based on the circumstances, or even fails to observe the proper protocol as to the maintenance of the deposit, then he or she may face stiff penalties. Many jurisdictions impose a penalty on the landlord of up to three times the deposit simply for violating procedure.

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