A landlord cannot collect a security deposit equal to more than one and one-half month’s rent. For example, if the monthly rent is $1,000.00, then the maximum security deposit a landlord may legally collect is $1,500.00. For more information about "maximum amount of deposit," see this blog post.
For now, just understand that any amount you collect that is refundable, without regard to what you call it (i.e., pet deposit, cleaning deposit, key deposit, etc.) is "security" under the ACT and is subject to the one and one-half month's rent limitation. If, however, you collect a pet fee, cleaning fee, rekeying fee, or any other fee or charge that the tenant will never get back no matter what the tenant does or does not do, then that money is not "security" under the ACT, is not subject to the one and one-half month's rent limitation, and does not have to be refunded to the tenant -- ever! Consequently, in the same example above, the landlord may collect a $1,500 security deposit, a $250 nonrefundable cleaning fee, a $250 nonrefundable redecoration fee, and a $25 nonrefundable application fee, but that same landlord COULD NOT collect a $1,500 security deposit and a $1 key deposit, because then the amount of deposits the landlord would be holding exceeds one and one-half month’s rent.
Here is a similar example, but demonstrates why the landlord should only collect one "deposit" -- the security deposit -- and no other "deposits." Same example as above but the landlord collects a $1,000 security deposit and a $500 refundable cleaning deposit. So far, the landlord is okay (i.e., the total "security" collected is less than or equal to one and one-half month's rent). The tenant leaves at the end of the lease term and owes $2,000 in past due rent. There is no property damage and the property is left cleaner than when the tenant moved in. The landlord will want to apply all $1,500 to the past due rent, but he can’t. Under the Act, "‘security’ means money or property given to assure payment or performance under a rental agreement." (See A.R.S. § 33-1310(14)). The tenant left the property clean and, therefore, the tenant is legally entitled to return of ALL of the $500 cleaning deposit. Why? Because the $500 "cleaning deposit" is "security" under the ACT because it is refundable. The rental agreement may or may not explain the conditions upon which the tenant will receive a full refund of the $500 cleaning deposit, but any judge who hears this case will (rightfully) conclude that the purpose of a "cleaning deposit" is to assure the landlord that the property will be clean when the tenant moves out; if not, then the landlord is entitled to deduct cleaning expenses from the $500 cleaning deposit. In our example, the tenants vacated owing rent, but left the rental unit spotless. It was the landlord -- not the tenant -- who decided to collect $500 and to label it a "cleaning deposit." The "cleaning deposit" can only be used for cleaning expenses, not unpaid rent, property damage or anything else. If the landlord holds onto that $500 deposit, then the landlord has "wrongfully withheld" part of the tenant’s refundable deposits and the tenant can sue the landlord for the $500 deposit, plus statutory damages equal to twice the amount wrongfully withheld (i.e., $1,000), plus attorney’s fees and court costs. A really bad result for the landlord.
Fortunately, the solution is simple. The landlord should collect only one deposit – a security deposit. I always recommend that my clients collect only a security deposit (not to exceed one and one-half month’s rent) because the ACT permits the landlord to apply the security deposit to any amounts owed by the tenant: rent, property damage, cleaning, whatever.