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Most tenancies require security deposits against damages. Security deposits, unlike rent, are not considered the landlord’s property – security deposits must be returned at the end of the tenancy, unless it is used to cover damages. In many (perhaps most) states, the landlord has to put the security deposit in a separate, interest bearing account – and is not allowed to commingle the money with his or her own. Thus, the landlord should provide the tenant with documentation indicating where the money is and pay the tenant the interest on a yearly basis. In some states, failure to provide documentation can result in forfeiture of the security deposit plus damages, even if the security deposit was needed to pay for damages to the property. In any case, the landlord – in all states – is required to account for the disposition of the deposited money.

If a tenant breaches the lease, the landlord has the right to retain all or part of the security deposit. The lease generally spells out the sort of damages for which the deposit was intended to be security – the most frequent damages are nonpayment of rent and damage to the property other than reasonable wear and tear. In many states, the landlord must provide an itemized list of damages before subtracting the costs from the security deposit. Also, once a tenant’s lease ends, the landlord has a statutory time limit within which he or she must return the security deposit. If a landlord wrongly withholds a tenant’s security deposit, a landlord could be liable for paying damages, court costs, and attorneys fees, up to two to three times the amount of the security deposit.

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