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Security Deposits

 

 

What Is a Security Deposit

A security deposit is any money, including a pet deposit or payment of the last month’s rent, taken by a landlord in advance of when it is due. A security deposit protects the landlord against damage beyond ordinary wear and tear caused by tenants, guests or invitees, pets, non-payment of rent and damages incurred by the landlord if the tenant breaches the lease. The Maryland security deposit law (located in the Landlord-Tenant Handbook at Appendix VI Maryland Security Deposit Law) provides very specific requirements for:

  • The maximum amount that a landlord may collect for a security deposit.
  • The required disclosures that must be in the security deposit receipt.
  • How a landlord must maintain the security deposit.
  • Surety bonds.
  • Returning the security deposit plus interest.
  • Determining damages against the security deposit.

Maximum Amount of a Security Deposit

The total amount of a security deposit (including a pet deposit, if any) cannot exceed 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 (OLTA) or pursuing a case in the Maryland District Court.

Written Receipt and Disclosures Required

A landlord must give the tenant a written receipt for payment of a security deposit or be subject to a $25.00 fine. The receipt, which may be incorporated in the written lease agreement, must include the following information:

  • The tenant’s right to participate, subject to a request by the tenant, in an inspection of the property at move-in and move-out, in order to determine the presence of damages.
  • The tenant’s right, within a specified timeframe, to receive a refund of the security deposit plus interest or, if the landlord intends to withhold any portion of the security deposit, a written list of charges against the security deposit claimed along with documentation of the actual costs incurred to repairing damages.
  • 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 plus reasonable attorney’s fees.

Maintaining the Security Deposit

Within 30 days of receipt of a security deposit, a landlord must place the security deposit in an interest-bearing account of a Maryland branch of a federally-insured financial institution. Alternatively, a landlord may hold the security deposit in insured certificates of deposit or in securities issued by the federal government or the State of Maryland. For more information about maintaining a security deposit, see Landlord-Tenant Handbook.

Returning the Security Deposit plus Interest

If, at the end of a tenancy, a landlord does not claim any damages to be assessed against the security deposit plus interest, the landlord must return the full security deposit plus interest within 45 days after the end of the tenancy. The interest returned is based on an interest rate set by the state of Maryland; it is not the actual amount of interest the security deposit accrued in the bank. The Maryland Department of Housing and Community Development maintains on its website a Rental Security Deposit Calculator to aid in this process. The user enters the beginning and end dates of the tenancy and the amount of the security deposit. The Calculator determines the amount of interest accrued, using the rates established by the State which have varied over time.

If, at the end of a tenancy, a landlord claims damages to be assessed against the security deposit and interest, the landlord must provide a written list of such damages and the actual costs incurred to repair any damages. The written list and any remaining portion of the security deposit plus interest must be sent by first class mail to the tenant, at their last known address, within 45 days after the end of the tenancy.

If a landlord fails to comply with these requirements, the landlord forfeits the right to withhold any portion of the security deposit plus interest. If a tenant breaches the lease by vacating early, the tenant must write to the landlord and request the return of the security deposit plus interest in order to preserve the tenant’s rights under the security deposit law.

For more information about requirements for returning the security deposit plus interest, see Landlord-Tenant Handbook.

Determining Damages Against the Security Deposit

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 like 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.

Security/Surety Bonds

As an alternative to a security deposit, a tenant may choose to buy a surety bond at the beginning of a tenancy. Generally, surety bonds allow a tenant to pay a lesser amount than would be required for a security deposit; however, unlike a security deposit, a surety bond is not refundable. A landlord may not require a tenant to purchase a surety bond and does not have to accept a surety bond from a tenant. Even after a tenant purchases a surety bond, the tenant is responsible for payment of:

  • All unpaid rent.
  • Damages due to breach of lease.
  • Damages by the tenant, tenant’s family, guests, agents, employees, or invitees in excess of ordinary wear and tear to the leased premises, common areas, major appliances, or furnishings owned by the landlord.

At the end of the tenancy, if a landlord charges the surety bond for damages by the tenant, the bond will pay the debt up to the ceiling established when it was purchased. The bond company will pursue the tenant for reimbursement of that debt. If the tenant leaves the property in good shape with no damage in excess of ordinary wear and tear, the tenant will not receive a refund.

For more information about the use of surety bonds and tenant’s rights regarding these bonds, see Landlord-Tenant Handbook and Security deposit law (located in the Landlord-Tenant Handbook at Appendix VI Maryland Security Deposit Law).