This blog subject was prompted by an article written by Roy Hanlin and published in the Journal of Property Management. It is really a simple answer. When a security deposit is submitted for the rental of a house or apartment the deposit belongs to the tenant until either the tenant’s lease is terminated or he moves from the unit. The security deposit is held by the management company or building owner to be used when this event occurs (tenant moving) so that any costs related to damages, non-payment of rent or charges owed under the terms of the lease can be recovered by the owner. At the termination of the lease (voluntarily or not) any amount remaining held for the tenant, must be returned to the tenant.

I have found that this subject is the most common cause of lawsuits by tenants against management companies and building owners. That is why documentation, pictures and eye-witness accounts of items charged against terminated tenants is most important. Also it is important to have a written lease in effect that specifically spells out charges that can be levied against the deposit. Without a written lease that lists items like late fees, attorney fees etc. a judge may disallow those charges against a tenant.

Finally, it is important that security deposits be held in a separate account from any operating funds. This is to ensure that security deposits paid (the tenants money) is not used for any of the owners day to day expenses.