How Much Can a Landlord Charge for a Security Deposit?
The amount that a landlord can charge for a security deposit for a residential tenancy (i.e., renting an apartment, condo, duplex, or home) is determined by state law. Some states have no limits, while others limit the specific amount to move in to one, one-and-a-half, or two times the monthly rent. Because landlord-tenant law is state law, tenants and landlords both should be familiar with the state’s law regarding security deposits that can be collected upfront on residential leases.
State law limits on the size of a security deposit typically only apply to the actual security deposit, and not to other deposits that may be required for certain additional things that an individual tenant wants. Before getting into those “other” deposits, it’s important to know what a security deposit is and is not: a security deposit is tenant money which the landlord holds on to until the tenancy is over, to compensate the landlord for damage done to the unit and/or for unpaid rent.
Landlords have considerable power to ban things that they believe could damage their property, as, for example, pets or water-filled furniture (e.g., waterbeds). A landlord could alternatively elect to allow these things—e.g., to let a tenant have a pet or a waterbed—but require an additional deposit for them, to provide “insurance” against damage. If deposits are required for additional things that a tenant could choose to not have (i.e., a Bernese Mountain dog or a waterbed), those extra deposits are over-and-above or in addition to the security deposit.
Your landlord could have a building that is generally “no smoking,” and charge an extra deposit for the right to smoke. The landlord could also charge an extra deposit for running a home-based business or anything else which could increase the landlord’s costs or potential liability, or result in extra wear on, or damage to, the unit.
Though states often limit the size of the security deposit itself, states do not limit those additional deposits, since the tenant could avoid paying the extra money by simply not having or doing the thing which requires an extra deposit.
A landlord cannot ask for an additional security deposit on lease renewal (unless the rent goes up on renewal, in which case the landlord could ask for additional money to keep the deposit proportional to the rent), but could ask for an additional pet or water-furniture, etc. deposit. Again, the difference is, a tenant who doesn’t want to pay the extra deposit has an easy fix: don’t do the thing requiring the extra deposit. The tenant’s ability to get out of the deposit by not doing the otherwise-prohibited thing is what justifies the additional cost.
A security deposit also does not include prepaid rent, such as if the tenant has to pay last month’s rent in advance. However, some states limit the right of landlords to demand prepaid rent, so it is a good idea to check your state’s law about this, too.
Security Deposit Receipt
In some states, the landlord is required to give the tenant a written receipt for all deposits paid and what it was for and/or the name and address of the bank where the security is deposited and the current interest rate for that account. Should this be required, make sure that banking information, the date and dollar amount of the security deposit, and under what conditions it will be returned is clearly stated in the written lease. The more things are spelled out, the less likely there is to be a later misunderstanding or conflict.
In terms of security deposit limits and subsidized apartments (such as a Section 8 voucher), the landlord can ask for the full amount of security based on the unsubsidized rent. That is, the subsidy applies to the rent, not the security deposit.
By way of example: take a unit with a “market rate” rent of $1,200, but where ¾ is paid by a subsidy, so that the tenant only pays $300. Suppose that unit is in New Jersey, where the landlord can get 1½ times rent as security deposit. In this case, the landlord can get 1½ times $1,200, or $1,800 as a deposit, even though the tenant only pays $300 per month. The landlord might choose to accept less as a deposit, but that’s the landlord’s choice.
Commercial Lease Deposits
Deposits for commercial tenancies, such as for an office, a store, a warehouse, etc. are almost always unregulated. Landlords can typically charge whatever he or she wants and the tenant agrees to pay, for commercial space.