Landlord should collect only one deposit -- the security deposit!

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. 

Comments

[Greg]

The landlord is collecting a security deposit and non-refundable cleaning fee. Our agreement requires that we leave the unit spotless. If we don't, according to the agreement, the landlord will charge my security deposit at the rate of $50 per hour for cleaning. Is that legal? What is the purpose of the non-refundable cleaning fee?

Response by Carlton C. Casler. The rental agreement may lawfully require you to leave the rental unit clean after you vacate. The “purpose” of the non-refundable cleaning fee is required to be stated in the rental agreement. (See ARS Sec. 33-1321(B)). As for whether $50 per hour for cleaning is lawful, the Act allows the landlord and tenant to include in the rental agreement ANY term or condition, as long as it does not violate the Act. (See ARS Sec. 33-1314(A)). The $50/hour provision does not violate the Act. As a practical matter, however, if the case goes before a judge, the judge may reduce or eliminate the $50/hour provision.

[Ellen]

I am being told by a property management company that they can charge more than the 1 1/2 times rent as security (they are charging last months rent on top of the security) if the prospective tenant has something negative in their credit report (they also said they can charge more if the prospective tenant has a felony or misdemeanor, which does not apply to me). Is this factual and where can I find information on this?

Response by Carlton C. Casler. That is false. The statute is ARS Sec. 33-1321(a). The statute does not have an exception for bad credit or any other exception.

[Christian]

I am interested in what constitutes "security deposit" and if it can be changed based on wording? I am moving into a new rental because current rental is in foreclosure. The new landlord is charging the following: 894.69 First month rent, 238.62 prorated rent, 875 refundable security deposit, 250.00 non-refundable cleaning fee and 894.69 last month rent. My understanding is the 875, the 250 and the last months rent all would be the "security deposit" even though these exact words are not used. Is this correct and then amount would then exceed the 1 1/2 months rent allowed to be collected as security? thank you.

Response by Carlton C. Casler. The term "security" is defined in the Act: " 'Security' means money or property given to assure payment or performance under a rental agreement. 'Security' does not include a reasonable charge for redecorating or cleaning." (See ARS Sec. 33-1310(14)). The Act also says: "A landlord shall not demand or receive security, however denominated, including, but not limited to, prepaid rent in an amount or value in excess of one and one-half month's rent." (See ARS Sec. 33-1321(A)). Your landlord has collected more security that permitted under the act. He has collect the first month's rent (that's okay), a security deposit of $875 (that's okay), and the last month's rent $894.69 (that IS NOT okay). The last month's rent is prepaid rent exceeds the limit. So does the $238.62 prorated rent. You may demand (in writing, of course) return of your deposits in excess of the legal amount. If the landlord refuses, you may sue in small claims court or in civil court for the amount unlawfully collected, PLUS twice that amount. (See ARS Sec. 33-1321(E)).

[Jonathan Wood]

Lorena's comment is an interesting one. When my tenants move in, I ALWAYS give them a list they must fill out with any flaws with the apartment and sign it. The must return it to me within two weeks or the assumption is made that there are no flaws with the apartment. When they move out, they will be responsible for any flaws not on that list.

If I were a tenant, I would expect the same list because it benefits both landlord and tenant. If the landlord did not provide such a list, I would write my own and get the landlord to sign it.

[Lorena]

I am a renter and we just moved out of our rental on the first. we paid a security deposit of $1500 and received a $400 discount off our first months rent for cleaning the house to move-in so we didnt do a move-in inspection because of that there were stains on the carpet and some stains on the walls as well. We paid $590 to get house profesionally cleaned inside and out including the cleaning of the carpet and landscaping and trash removal... now our landlord is saying becasue of some stains that wer enot able to come out he needs to replace the whole carpet upstairs and downstairs... Can he charge us for total replacement of carpet if pictures show stains in certain ares of the home?

Response by Carlton C. Casler: A tenant must return the rental property to the landlord at the end of the rental period in the same condition (or better) than the commencement of the tenancy, except for "normal wear and tear." The controversy that often arises centers around what constitutes "normal wear and tear." If you can demonstate your useage was only normal wear and tear, then you should get all of your deposit back. Also, the age and quality of the carpet is important. If the carpet was already at the end of its "economic life" (i.e., it was supposed to last 10 years and you moved in 9 or 10 years after it was originally installed), then the landlord is NOT entitled to charge you for the entire cost of recarpeting his rental unit.