What is the maximum security deposit a landlord may collect?

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. Sounds simple, but it’s not.

A security deposit does not include nonrefundable cleaning or redecorating fees, but DOES include refundable cleaning, redecorating and/or any other type of refundable deposit (i.e., refundable pet deposit, refundable key deposit, etc.). Incidently, security deposits are ALWAYS refundable deposits; there is no such thing as a "nonrefundable security deposit."

Consequently, a landlord MAY: 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.

Hang on, we’re not done. Same example, but the landlord collects a $1,000 security deposit and a $500 refundable cleaning deposit. So far, the landlord is okay. But 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 – the tenant is legally entitled to return of the $500 cleaning deposit. If the landlord holds onto that 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.

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 landlord may apply the security deposit to any amounts owed by the tenant: rent, property damage, cleaning, whatever. Under the Act, and as stated above, the landlord can also collect fees and charges (i.e., nonrefundable) for cleaning, redecorating, etc. The only restrictions on fees and charges are: (1) they must be "reasonable" (whatever that means) and (2) the purpose of the nonrefundable fee/charge must be stated in writing (i.e., in the rental agreement or some other written document).

Comments

[JNM]

Mr. Casler, my situation involves the following: Monthly Rent: $800. Landlord requirement to move in: First month, last month and $1000.00 "SECURITY DEPOSIT" (Noted in lease and no mention of non-refundable mentioned). We were not aware of the law so we paid what she required when we moved in 10 months ago. I have given her a demand letter asking for return of $800 in accordance with the law. She has refunded the $800 but insists it is a return of the "last month" rent and not the security deposit. Does she have the right to determine where the overpayment is to be applied? Thank you in advance. Regards, JNM, Phoenix.

Response by Carlton C. Casler. Yes. People, including landlords and tenants, make mistakes. This is one of the reasons the Act requires one party to notify the other party before taking legal action – it gives the offending party the chance to research the law and reevaluate the action they have taken. In this case, you notified your landlord that she unlawfully collected too much in deposits. She responded by returning a portion of your deposits – the portion that was initially earmarked for the last month’s rent. All people (and judges) will agree that a landlord may collect the first month’s rent and a security deposit. Consequently, if the landlord erroneously collects the first month’s rent, a security deposit AND the last month’s rent (the latter being unlawful under the Act), then the landlord may cure this violation of the Act by refunding the last month’s rent that was unlawfully collected. While it is true that should could have refunded the security deposit and retained the last month’s rent, it is equally true that she could have collected just the first month’s rent and the last month’s rent and no security deposit. Her actions comply with the Act.

[real estate investment]

Well, I should admit that after reading your awesome article, I got a lot of idea for my own site thanks for that, it’s really inspiring me, and probably also for another people who also visit your site. Thanks.

[Laure]

How does last months rent figure into security deposits? For instance move in costs are: $895 1st months rent (this includes tax), last months rent $895, $875 security (the only thing they call "security deposit") $250 cleaning deposit.

Response by Carlton C. Casler. The Act limits "security" to an amount equal to one and one-half month's rent. For example, if rent is $1,000 per month, the maximum "security" a landlord may lawfully collect is $1,500. "Security" includes any type of deposit that the tenant can get back after tenancy terminates, including the security deposit, cleaning deposit, key deposit, pet deposit, etc. Anything that is a "deposit" that will be refunded to the tenant (provided certain criteria is met) is "security," as well as the last month's rent, which is also considered "security" under the Act. (See ARS Sections 33-1321(A) and 33-1310(14)). The first month's rent is not "security" because it is due now. From the figures given in your question, your landlord has collected more "security" than is permitted under the Act. You may lawfully demand (in writing, of course) that the amount exceeding one and one-half month's rent be refunded.

[Professional Cleaning London]

Hi,
Great work done by author for sharing this informative post. I appreciate it. Thanks for sharing this informative post