Security Deposits and Move-In, Move-Out Inspections

The total amount of the security deposit cannot exceed the equivalent of two months’ rent. If a landlord charges more than this amount, the tenant may recover up to three times the excess amount charged, plus reasonable attorney’s fees by filing a complaint with the Office of Landlord-Tenant Affairs.

The landlord must give the tenant a written receipt for payment of a security deposit. The receipt must inform the tenant of their rights under Section 8-203, Security deposits of the Real Property Article, Annotated Code of Maryland, 2015, as amended (See Landlord-Tenant Handbook Appendix V, Maryland Security Deposit Law). The receipt may be incorporated into the written lease agreement. If the landlord fails to provide a receipt for the security deposit, the landlord is liable to the tenant for a $25.00 penalty. The landlord is required to retain a copy of the security deposit receipt for a period of two years after the end of the tenancy.

The receipt for payment of the security deposit must contain a notice informing the tenant of the following:

• Their right to have the rental property inspected by the landlord in the tenant’s presence for the purpose of making a written list of damages that exist at the beginning of the tenancy. The tenant must request an inspection by certified mail within 15 days of the tenant’s occupancy;
• Their right to be present for a final walk-through inspection of the rental property if the tenant notifies the landlord by certified mail at least 15 days before the date of the intended move. This notice must contain the intended move-out date and the tenant’s new address. The landlord is obligated to conduct this inspection within five days before or after the tenant’s intended move out date. The landlord is obligated to notify the tenant in writing by certified mail of the date of the inspection;
• Their right to receive, within 45 days after the termination of the tenancy, by first class mail, delivered to the last known address of the tenant, a written list of the charges against the security deposit claimed by the landlord along with the actual costs incurred to repair any damages;
• The landlord’s obligation to return any unused portion of the security deposit by first class mail, to the tenant’s last known address, within 45 days after the termination of the tenancy; and
• A statement that the landlord’s failure to comply with the security deposit law may result in the landlord’s being liable to the tenant for a penalty of up to three times the amount withheld from the security deposit plus reasonable attorney’s fees.

A landlord’s failure to comply with this requirement forfeits their right to withhold any portion of the security deposit for damages and may result in the awarding of treble damages. However, damages are NOT automatically awarded by the Commission on Landlord-Tenant Affairs and cannot be awarded by the staff of the Office of Landlord-Tenant Affairs.

DHCA strongly recommends that both parties inspect the rental property prior to move-in and compile a written list of any damages. This inspection will help to document pre-existing damages and may prevent misunderstandings regarding who is responsible for damage at the time of move out. DHCA Office of Landlord Tenant Affairs strongly encourages the use of the Inspection Report, which is included in the Landlord-Tenant Handbook. 

The landlord must place the security deposit in a federally insured financial institution that does business in the State of Maryland. The security deposit must be maintained in a branch of the financial institution located in Maryland. The account is to be devoted exclusively to security deposits and must bear interest. The landlord may hold the security deposit in insured certificates of deposit or in securities issued by the federal government or the State of Maryland. The deposit must be made within 30 days of receipt and maintained throughout the tenancy.

Security deposits began earning interest effective July 1, 1972.  All security deposits received between July 1, 1972 and June 30, 1980 accrued interest at a rate of 3% per year.  All security deposits received between July 1, 1980 and September 30, 2004 accrue interest at a rate of 4% simple interest per year. All security deposits received or held on or after that date accrue interest at a rate of 3% simple interest per year. Effective January 1, 2015, the interest on security deposits was reduced from 3% simple interest per year to the daily U.S. Treasury yield curve rate for 1 year, as of the first business day of each year, or 1.5%, whichever is greater.  Security deposits paid prior to January 1, 2015 accrue interest at the rate in effect when they were paid to the landlord, until the date the law changed. The security deposit will accrue interest in six-month intervals.  For any year in which the landlord has held the security deposit for less than the full year, the landlord shall pay an amount of interest calculated by: 

1. Multiplying the amount of the deposit by the daily U.S. Treasury yield curve rate for 1 year that was in effect as of the first business day of that calendar year, or 1.5%, whichever is greater; and ;
2. Multiplying the result obtained under item 1 of this subparagraph by a fraction, the numerator of which is the number of months the deposit was held that year and the denominator of which is 12.

The Department of Housing and Community Development (DHCD) for the State of Maryland maintains on its Web site:

1. A list of daily U.S. Treasury yield curve rates for 1 year, as of the first business day of each year, to be used in calculating the interest on a security deposit; and 
2. A customized calculator that calculates the interest due on a security deposit by allowing a user to enter a tenancy start date, a tenancy end date, and the amount of the security deposit.

A landlord is entitled to rely on the list of yield curve rates, or the customized calculator maintained by DHCD under Section 8-203, subsection (k) of the Real Property Article, Annotated Code of Maryland, 2015 as amended, when calculating the interest on a security deposit paid on or after January 1, 2015. (See  Maryland Security Deposit Law).

When a tenant vacates a rental property, DHCA strongly encourages that both landlord and tenant inspect the property together for damage. If a tenant wishes to require the landlord to be present for this inspection, the tenant must:

• Send a written notice to the landlord by certified mail;
• Send the notice to the landlord at least 15 days before the move-out date; and 
• State the move-out date and include the tenant's new address.

The landlord must:

• Respond to the tenant in writing, via certified mail, advising the tenant of the date and time of the inspection; and
• Schedule the inspection within 5 days before, or 5 days after, the move-out date given by the tenant. 

It is strongly recommended that tenants exercise this right so that both parties are present when the inspection takes place to determine if any damage beyond normal wear and tear has occurred. This inspection will create a written inspection report, detailing the condition of the property. DHCA also recommends that the landlord and the tenant, if present, take time and date stamped photographs of the rental property as part of this inspection to document the condition of the property. Prepare an inspection report even if no damage is noted. The inspection report should be signed by both parties (See Landlord-Tenant Handbook, Appendix V- Inspection Report)

The security deposit is used to protect a landlord from financial loss at the end of a tenancy, due to non-payment of rent, damages due to breach of lease, or physical damage to the rental property in excess of ordinary wear and tear. It is not permissible for a landlord to use the security deposit to restore a rental property to its condition at the beginning of the tenancy if damages are limited to ordinary wear and tear. Nor is it permissible for a landlord to use a security deposit to make improvements to enhance the value of the property or to prepare it for sale.

Ordinary wear and tear is deterioration that occurs without negligence, carelessness or abuse of the premises, equipment, furnishings or appliances by the tenant, a member of the household or other persons on the premises with the tenant’s consent. For example, faded, cracked or chipped paint is ordinary wear and tear. A painted surface that requires more than one coat of primer and one coat of paint to cover has sustained damages beyond ordinary wear and tear.

When a fixture or appliance needs replacing due to the tenant’s abuse or neglect, the landlord will need to know several values in order to calculate the tenant’s portion of the replacement cost of the item:

• Actual current cost to replace the item;
• The life expectancy of the item;
• The current age of the item;
• The remaining useful life;
• The remaining useful life expressed as a percentage;

For more detailed information, examples of damages beyond ordinary wear and tear, and detailed instructions on calculating and assessing the replacement cost of fixtures and appliances, see  Ordinary Wear and Tear Booklet.

The most common dispute between landlords and tenants involves the refund of the tenant’s security deposit after the end of the tenancy. The Office of Landlord-Tenant Affairs has published a booklet entitled “ What Is Ordinary Wear and Tear” (and Spanish language: “ Qué Significa Desgaste Natural?”) to help landlords and tenants distinguish between damage and ordinary wear and tear. Ordinary wear and tear is defined as deterioration that occurs without negligence, carelessness or abuse of the premises, equipment, furnishings or appliances by the tenant, a member of the household or other persons on the premises with their consent.

State law specifies procedures that the landlord must follow for refunding, using, and accounting for the security deposit.

• If no damage is claimed by the landlord, the security deposit, plus any accrued interest, must be returned to the tenant, at their last known address, within 45 days after the termination of the tenancy;
• A landlord may withhold all or part of the security deposit for unpaid rent, actual cost incurred to repair damage in excess of normal wear and tear to the property caused by the tenant, or for other actual costs incurred by the landlord if the tenant has breached the lease agreement;
• If the landlord withholds any portion of the security deposit, the landlord must send a written notice of the deductions to the tenant. This itemized list must:
  1. Be sent by first class mail to the last known address of the tenant. If the tenant does not provide a forwarding address, the address of the rental property is to be used;
  2. Be sent within 45 days from the end of the tenancy; and
  3. Contain a written list of the damages claimed and a statement of the costs actually incurred, including damages incurred from breach of lease.
• If the landlord fails to comply with these requirements, the landlord forfeits the right to retain any portion of the security deposit;
• In the event a rental property is sold while a tenant still occupies it, any security deposits taken are transferred to the new owner and they must comply with all the requirements regarding the return of the security deposit;
• If a tenant breaches the lease agreement by moving prematurely, they must write to the landlord and request the return of the security deposit within 45 days after vacating the rental property in order to preserve their rights under the security deposit law. This request must be made by certified mail. Absent a written request, the landlord is not obligated to comply with the 45-day timeline; however, the landlord must still account for the security deposit as required by law.

Sometimes, in lieu of paying a security deposit, a landlord may suggest a tenant purchase a surety/security bond as an inexpensive alternative to the traditional security deposit. While a surety/security bond is generally much less expensive than a security deposit, there are some basic things tenants and landlords should know:

• A surety/security bond is insurance for the landlord to protect against damage caused by tenants, guests, or invitees, pets, non-payment of rent, and/or damages incurred by the landlord if the tenant breaches the lease;
• The landlord cannot require a tenant to purchase a surety/security bond;
• The landlord is not required to consent to the purchase of a surety/security bond by the tenant;
• A surety/security bond cannot total more than two months’ rent;
• If a tenant purchases a surety/security bond and pays a security deposit, the collective total cannot exceed two months’ rent;
• A tenant purchasing a surety/security bond must be informed in writing that: 
  • The surety/security bond is not refundable;
  • The surety/security bond is not insurance for the tenant;
  • The surety/security bond is being purchased to protect the landlord against loss due to damage caused by tenants, guests, or invitees, pets, non-payment of rent, and/or damages incurred by the landlord if the tenant breaches the lease;
  • The tenant may be required to reimburse the surety for amounts the surety paid to the landlord;
  • Even after purchase of the surety/security bond, the tenant is responsible for payment of damage caused by tenants, guests, or invitees, pets, non-payment of rent, and/or damages incurred by the landlord if the tenant breaches the lease; and,
  • If the surety fails to comply with the provisions above, the surety forfeits the right to make any claim against the tenant under the surety/security bond;
• A tenant has the right to pay the landlord directly for any damages or use the tenant’s security deposit, if any, before the landlord makes a claim against the surety/security bond; and
• At least 10 days before a landlord makes a claim against a surety/security bond, the landlord shall send the tenant, by first-class mail directed to the last known address of the tenant, a written list of the damages to be claimed and a statement of the costs actually incurred by the landlord. For full information on surety/security bonds, see the Maryland Security Deposit Law.