What’s the scoop on security deposits?

Security deposits in Pennsylvania are regulated by the Landlord-Tenant Act. A security deposit is not the same as rent — it is money that actually belongs to the tenant, but is held by the landlord during the lease term as protection from tenant caused damages or unpaid rent. A security deposit may not legally be used as the last month’s rent — unless consent is given by the landlord. There are quite of few rules to follow as it relates to tenant deposits so be sure to educate yourself on this topic prior to leasing a property.

Rules to Live By:

• In Pennsylvania, there is no minimum security deposit. The maximum amount a landlord can require for a security deposit is equal to two month’s rent. At the beginning of the second year of a lease the landlord may not keep a security deposit equal to more than one month’s rent and must return any money greater than one month’s rent still being held as a deposit. After five years the landlord cannot increase a security deposit even if the monthly rent is increased.

• Pennsylvania law additionally regulates where security deposits must be kept and when interest payments on the security deposits must be made to the tenant. Security deposit monies in excess of $100 must be deposited by the landlord into a separate bank account. The deposit may not be comingled with any other funds. The lease should state the depository name and address of where the deposit is held. Beginning with the third year of a lease, the landlord must put security deposits over $100 into an interest-bearing bank account. At the end of the third year, the landlord must give the tenant the yearly interest that is accrued. The landlord does not have to pay interest to the tenant during the first two years of the lease.

• Security deposits must be returned within 30 days of the tenant moving out. If the landlord keeps any of the security deposit, he or she must provide the tenant with a written, itemized list of damages and the remaining balance must be returned within the same 30-day time period. For a security deposit to be held for damages, those damages must exceed normal wear and tear to be eligible for reimbursement.

• If a landlord fails to comply with these statutes, the tenant is entitled to sue for double the security deposit and any interest earned in the escrow account. However, if the tenant fails to provide the landlord (in writing) with a forwarding address, the landlord may be free from liability.

WHAT CAN the security deposit BE USED FOR?

• Damages to the premises beyond normal wear and tear

• Unpaid rent or fees

• Breach of the rental agreement

Should the security deposit always be the same amount as rent?

Typically — yes, it is customary to collect one months’ rent for a security deposit. There are certain times you may consider more than one month’s worth. Here are a few examples:

• When a pet is involved — You definitely want to collect something to cover any potential damages a pet may cause. However, instead of or in addition to a security deposit (which has to be returned to the tenant — less any damages) it is better to collect a pet “fee” on top of the monthly rent. This is money in your pocket. I advise collecting a $250 pet deposit AND a $25/per month fee, per pet.

• When the tenant’s application is less than ideal — Perhaps they do not have the credit you are looking for or they lack a good rental history. While this does not sound like your ideal tenant, if they are your only option, you should consider collecting more security — this shows they are committed to the rental and lessens your risk if they don’t pay or damage the unit.

• When you increase rent — If you increase rent, it is never a bad idea to ask the tenant to increase the security deposit along with the increase of rent. However, after five years you cannot increase a security deposit even if the monthly rent is increased.

ADditional TIPS TO CONSIDER:

Keep in mind, the security deposit is not your money — nor is it a way to recover from bad decisions or safeguard your finances. It is the tenant’s money and you must have clearly documented proof or reasons for withholding any of it. Painting a unit in between tenants is not an allowable deduction from the security deposit. Damages must be above normal wear and tear to be charged back to the security deposit.

So, what is normal wear and tear? It is subjective at best — but I would classify it as more than usual wear on a property. Scuff marks on walls are normal wear and tear. Worn down carpet is normal wear tear. Holes in walls or doors are damages. Flooring that is destroyed due to animal urine is considered damages. Items that need maintenance over time — like appliances or leaking faucets — are normal wear and tear and not something to be charged back to a tenant.

The rules and regulations regarding security deposits vary from state to state. This article is based off of Pennsylvania’s laws, but as always, be sure to check the rules and regulations for your specific state.

The references and opinions in the article are not to be considered legal advice. You should consult your attorney before withholding a security deposit.