Rental Security Deposits
So you decided to move into a rental property. You supplied the required security deposit and now the term of the rental agreement has expired. What happens to your security deposit?
Whenever money is deposited as a security for performance or as advance rent for other than the next immediate rental period, the landlord or the landlord’s agent must do one of the following with those funds provided the landlord has 5 or more dwelling units rented:
- Hold the total amount of funds in a separate account (without interest) and not commingle such moneys with any other funds or make use of such funds until they are actually due the landlord; or,
- Hold the total amount of such funds in a separate interest-bearing account in which case the tenant shall receive and collect interest in an amount of at least 75 percent of the annualized average interest rate payable on such account or interest at the rate of 5 percent per year, simple interest, whichever the landlord elects. The landlord shall not commingle the funds or in any other way make use of the funds until such moneys are actually due the landlord; or,
- Post a surety bond as principal with the clerk of the circuit court in the county in which the dwelling unit is located in the total amount of the security deposit and advance rent the landlord holds on behalf of the tenant or $50,000, whichever is less. In addition to posting the surety bond, the landlord shall pay to the tenant interest at the rate of 5 percent per year, simple interest.
Within 30 days of receipt of a security deposit, the landlord must notify the tenant in writing of the manner in which the landlord is holding the funds and the rate of interest, (if any). The landlord is also to provide the tenant with the amount of the interest being earned and when those interest payments will be made available to the tenant. The notice to the tenant may be given in person or by mail. The notice shall also state the name and address of the financial institution where the security deposit is being held, how it is being held (e.g. CD or Money Market) and the form of interest that is being generated (if any).
In the event the landlord changes the manner or location in which the security deposit is being held, the landlord must notify the tenant within 30 days of the change with the information previously stated.
Lastly, in those cases in which interest is required to be paid to the tenant (by the terms of the lease agreement), the landlord shall pay directly to the tenant, or credit against the current month’s rent. In the event the landlord does not pay the interest directly to the tenant or credit against the tenants monthly rent, the landlord must pay the amount of interest earned directly to the tenant on an annual basis. However, no interest shall be due a tenant who wrongfully terminates their tenancy prior to the end of the rental term.
In all cases, (regardless of the number of dwelling units a landlord rents) when you vacate the rental property because the lease has terminated and the landlord does not intend to impose a claim on the security deposit, the landlord shall have 15 days to return the security deposit together with interest (if any), or the landlord shall have 30 days to give the tenant written notice by certified mail to the tenant’s last known mailing address of his or her intention to impose a claim on the deposit and the reason for imposing the claim. The notice shall contain at least the following information:
- the intention to impose a claim for damages against your security deposit;
- a description of the damages or reason for withholding a portion of the deposit;
- instructions regarding your right to object in writing of the amount being deducted;
- the timeline within which you must object; and,
- the location where the objection must be sent (usually the landlord’s address).
If the landlord fails to give the required notice within the 30-day period, he or she forfeits the right to impose a claim upon the security deposit.
If you fail to object to the imposition of the landlord’s claim within 15 days after receipt of the notice from the landlord to impose a claim, the landlord may then deduct the amount of the claim and shall remit the balance of the deposit to the tenant within 30 days after the date of the notice of intention to impose the claim for damages.
In the event either party files suit to decide who has a right to the security deposit, the prevailing party is entitled to receive reimbursement for court costs plus reasonable attorney fees from the non-prevailing party.
One of the things that most tenants fail to do when abandoning or when the lease has terminated is to provide adequate notice to the landlord of their intention to vacate and the address where the tenant may be reached (e.g. a forwarding address). It is not enough to simply give a forwarding address to the post office. You must give at least 7 days’ written notice by certified mail (or personal delivery) to the landlord where he or she can send your security deposit notice. Failure to give notice to the landlord shall relieve him or her of the requirement of sending you notice of the imposition of keeping all or a portion of your security deposit. However, failure to provide a forwarding address does not waive any right the tenant may have to the security deposit or any part of it.
If you are a tenant, the most important thing to remember upon termination of your lease is to provide your landlord with a forwarding address by certified mail within 7 days of leaving the rental premises. It is also strongly suggested that you take pictures (or video) of the premises prior to leaving and if possible, have your landlord with you while photographing. In addition, upon receipt of notice from the landlord of a claim for your security deposit, you must notify the landlord of your objection (do this by certified mail) within 15 days of receipt of the claim. If you do not get satisfaction, consider filing suit (if it makes economic sense) for its recovery.