Security deposits are a frequent cause of landlord-tenant disputes. The best way to avoid confusion and legal hassles, such as small claims lawsuits over deposit deductions, is to include a lease clause that provides specific details on all relevant issues, including:
- the dollar amount of the deposit (which must comply with state limits)
- when the deposit will be returned, along with an itemized statement of deductions (another issue which is typically regulated by state law)
- how the deposit may be used, such as for cleaning and damage repair (excluding ordinary wear and tear), and
- how the deposit may not be used (such as for last month’s rent, unless you’ve given prior approval).
In addition, your state law may require landlords to give tenants written information in the lease or rental agreement on other aspects of the security deposit, such as where the deposit is being held, interest payments, and conditions under which the security deposit may be withheld.
Check Nolo’s state-specific articles, Security Deposit Limits and Deadlines in Your State, for details on your state’s rules on deposits, including dollar limits, deadlines and procedures for returning deposits, interest requirements, and other relevant information you should include in your lease or rental agreement.
Other lease issues related to security deposits include:
Nonrefundable fees. It’s usually not a good idea to charge tenants a nonrefundable fee—for one thing, they are illegal in several states, including California. But if you do collect a nonrefundable fee, such as for cleaning or pets, be sure your lease or rental agreement is clear on the subject.
Move-in and move-out inspections. A Landlord-Tenant Checklist, inventorying the condition of the rental unit at the beginning and end of the tenancy, is an excellent way to avoid problems when the tenant moves out and wants the security deposit returned. You can cover the issue in your lease or rental agreement, and include a copy of the checklist as part of your original lease agreement.
Nolo books, Every Landlord’s Legal Guide and The California Landlord’s Law Book: Rights and Responsibilities, provide extensive advice for landlords on legal rules and best practices for setting and returning deposits; making deductions from deposits; and avoiding disputes by doing a Landlord-Tenant Checklist at the start and end of the tenancy. Nolo also offers downloadable lease and rental agreements that include relevant security deposit clauses.