Defining the Security Deposit Agreement
A security deposit agreement, commonly referred to as an addendum, rider, or lease addendum, is a distinct agreement that lays out the terms of a security deposit, which is separate from the larger rental or lease agreement. This document is a legally binding contract between a tenant and landlord that protects each party during the course of their relationship, which may be several years long. Its terms stipulate how the deposit is handled and the conditions under which it might be withheld.
The deposit amount is typically listed in the lease agreement, and the tenant is required to give the landlord the full total of the required deposit before they move in. The money will then be held by the landlord until the end of the rental period and is used to cover damage to the unit or outstanding rent costs should the tenant not pay rent . Both tenants and landlords are protected by this form because it tends to keep landlords from withholding deposits arbitrarily at the end of the agreement and keeps tenants from trashing a rental property and assuming they will not be held liable for the damage.
The language used can be straightforward and basic, but it is important to include certain key components, such as when exactly the deposit must be paid and how it should be paid (for example, by check, cash, or wire transfer). It’s also necessary to address where the funds will be held. State laws require that in most cases, the deposit must be held in an insured account, with the name of the state-listed bank. The penalties for failing to put the funds into an insured account can result in losing the right to withhold the funds at all.
Core Components of a Security Deposit Agreement Form
A security deposit agreement form must contain the essential elements governing the landlord-tenant relationship. While state laws usually dictate these elements, typical components of a security deposit agreement include:
Amount
The amount charged may be stated as a specific sum, or by reference to local rent control laws or similar legislation. The amount tied to rent control regulations may change from time to time.
Terms of Return
Typical language regarding the return of the security deposit informs the tenant of the landlord’s intent to return the funds on or before the end of the lease term, and only to withhold funds to cover damages for which a tenant is liable or the expenses of cleaning.
Conditions for Deductions
The security deposit provision should outline the conditions under which the landlord may deduct funds from the security deposit for repairs and cleaning. Such deductions are limited to those that have been reasonably incurred as a direct result of the tenant’s acts or omissions.
Tenant Responsibilities
The deposit agreement form can specify whether the tenant may be responsible for removing any furniture, appliances or apparatus brought into the premises which could damage the property. This language is often brought about by the installation of a washing machine, dryer or dishwasher in a rental unit, as well as equipment for various business or health and beauty services.
Small Claims Court Limitations
This element of the security deposit agreement allows the landlord to avoid the increased time and expense involved in filing a lawsuit for damages greater than the small claims court limitations. The language should state that the total of the claim will not exceed the jurisdictional limit of small claims court.
Landlord and Tenant Signatures
Security deposit provisions must be signed by the landlord and the tenant. Tenants often do not read lease provisions carefully, so it is essential that they be asked to initial the security deposit clauses, so that they are specifically referred to and reviewed.
Statutory Requirements and Legal Compliance
Employing a Security Deposit Agreement Form is not simply a matter of best practices; many U.S. states have unique laws and rules in place regarding security deposit payment, receipt, refund, and reconciliation. Failure to comply with these laws leaves a landlord liable for legal action. On the flip side, failing to employ a Security Deposit Agreement Form can land a landlord in hot legal water as well. Having an agreement in place to document the receipt and purpose of the deposit can prevent legal conflicts arising over how a security deposit money was used. Variations in laws by state or region make it necessary for property managers to arm themselves with a good understanding of local rules, ordinances, statutes, and regulations regarding the use, handling, and administration of security deposits. Some compliance requirements include: Properly managing and administering deposits can mean protecting landowners from significant financial loss as well as the avoidance of costly legal actions. This means ensuring compliance with these laws, statutes, ordinances, and rules is essential.
How to Draft a Security Deposit Agreement Form
A security deposit agreement must contain certain information to be clear and legally enforceable. Below are the steps to take when creating a security deposit agreement:
- State the amount of the security deposit.
- State the due date for the security deposit.
- State that the tenant will be notified in writing of any changes in the due date.
- State the name of the bank where the funds may be deposited. Under California law, a landlord must inform the tenant in writing whether the security deposit or any prepaid rent will be held in an interest bearing or non-interest-bearing account and whether the account is a trust account, a nontrust account, or an account designated as both.
- Include a provision that the tenant will be provided with a receipt for the deposit.
- Include a provision that a checklist of apartment conditions will be completed and attached to this security deposit agreement. The checklist should describe the general condition, cleaning, maintenance, and repair of each room in the apartment unit. Good Faith checks should be made and documented as they are completed, with the intention that both the landlord and tenant can agree to the deductions that may be made from the security deposit upon termination of the rental agreement.
- State the circumstances under which the deposit, or a portion of it, may be withheld upon termination of the rental agreement.
- List the reasons that the security deposit may be used upon termination of the rental agreement. There are statutory requirements for what may be deducted from a security deposit in the state of California; therefore this list should be consistent with those provisions.
- Include a provision that the tenant acknowledges that he or she has requested the use of a checklist, that the tenant has received the checklist, and that the tenant has received the information required by law regarding the use of a checklist.
Frequently Encountered Errors
Landlords and tenants need to be careful when filling out security deposit agreement forms to avoid making mistakes that can lead to future disputes. A mistake in an agreement form could mean the difference between recovering a security deposit and losing it to a claim in small claims court. Here are some common mistakes both landlords and tenants should avoid: Landlords often make the mistake of charging too much for a security deposit. Most states limit what landlords can charge for these fees, and charging a higher amount could make your agreement form unenforceable. Another common mistake is not having a property included on an agreement form . If there’s a property you’re renting out that’s not mentioned in a security deposit agreement form, you could be giving up your ability to recover that property. Be sure to list any and all property you expect to be reimbursed for in your agreement. You may forget to have an agreement form copied for review before signing. This is a bad idea for either landlords or tenants. It’s always best to read an agreement form entirely before signing so you’re comfortable with all the terms and conditions. Failure to do so could result in a regretful signing that you could come to regret later.
Managing Security Deposits: Best Practices
When it comes to security deposits, there are a number of best practices that landlords should follow to ensure they are in compliance with the law and show the best first impression possible. First off, remember that you should always collect a separate check for the security deposit. This may seem obvious but we can’t emphasize enough how important it is to collect a separate check for the security deposit as opposed to lumping it together with other fees and payments. This will give you some added comforts when you are trying to return the deposit to the tenant. Secondly, don’t commingle the security deposit money with your operating account. You should also. . .
Addendum to our Best Practices above: Be aware of differing security deposit laws in local municipalities. Some municipalities have their own laws on security deposit collection, holding, interest rates, and release. If the property is located in a municipality with unique rules it is usually best to follow the municipal rules, even if it is not required by state law, and even if the landlord thinks the municipal rules are unreasonable. Check out the new Rental Rules page on the New Jersey Division of Consumer Affairs website for additional information on security deposits in specific municipalities.
Security Deposit Dispute Resolution
When trying to resolve a security deposit dispute, or a rent dispute, the civil courts of Québec accept written documents as proof of a transaction provided that it is dated, signed and contains the signature of the person against whom it is invoked.
With regard to Witness Statements, they must nonetheless be signed by the witnesses themselves.
As such, it is a good idea to keep a detailed history of what happened during your occupancy of the premises, including dates and all communications, along with evidence to support your version of events, for example, photos of the condition of the premises, written communication with the landlord or even testimonials from witnesses. Having this on hand will allow you to proceed through the process in a timely fashion and hopefully avoid further costs in time and money. For example, if you offer to pay your landlord directly to fix something in your unit, have something written and signed by the landlord confirming that it is ‘finished’ and by the tenant confirming that he has received the money.
Some individuals will proceed against their landlord through the courts , for example, going to the small claims court or making a formal demand in court. The small claims court allows an individual to bring a case against a person for the payment of money up to the limit established under the Code of Civil Procedure. The limit is currently $15,000. A demand is an official document signed by the tenant and gives the tenant advance warning that the individual intends to take action. The claim must be filed at the Court Office; the claim and any supporting documents will be served on the other party and a date will be set for a hearing before a clerk of the court. At the hearing, the tenant and the landlord will each be given a chance to state their case. The clerk will make a decision in writing, which both parties will receive.
The tenant can also file a complaint with the Régie du logement if he feels his landlord is in the wrong, which also may not be the same day as the actual hearing of the case.