Creating a Security Deposit Contract Template: Quick Reference

Security Deposits Explained

A security deposit is a sum of money held in trust either as security for a potential tenant’s obligations to their landlord, or as security for the costs of maintaining or repairing a leasehold property. It serves as a guarantee that the tenant will uphold the terms of their rental agreement, particularly regarding the care of the property. While primarily intended to cover any damage to the property, this is not always the case. For instance, a lease may require a tenant to pay for non-repairable damage, such as dog bite marks , cigarette burns and water stains. Repairs for such damage typically spell the end of the tenancy: if the cost of restoring the property exceeds the security deposit, the landlord has every reason to allow the contract to terminate.
Security deposits are not always necessary for a lease. When they are required, a large part of a landlord’s responsibility under the contract will include ensuring the return of the deposit to the tenant. The tenant, for their part, is expected to return the property in its original condition, allowing for fair wear and tear.

The Core Components of a Security Deposit Contract

The fundamental basis for a security deposit contract is to specify the conditions for the return of the deposit. It should also state the purpose of the deposit, the time limits in place for its release, and any other terms you would like to include. The contract should outline the details of the agreement, including:

  • Amount of the deposit; both the amount due now and the total amount when the lease ends
  • Conditions necessary for the deposit to be forfeited or returned, such as costs incurred on your part or regular conditions, such as failure of the tenant to pay rent on time as per the lease
  • Duration of the deposit; often for the full length of the tenancy, but if applicable, how the deposit can be forfeited before the end of the lease
  • Determination of damages; how the property will be assessed throughout the tenancy to determine what qualifies as damages and what is normal wear and tear on the property and equipment
  • Time limits; when the deposit and any interests gained on it need to be released and by what parties
  • Liability of the landlord; any written agreement that the landlord is financially responsible for damages, unless otherwise specified
  • Inspection rights; your right to inspect the property at any time to assess its condition and, if necessary, release or forfeit the deposit
  • Conduct and behaviour; expectations of conduct for residents and guests of the property, any limits on smoking, drinking alcohol, excessive noise, and other potential nuisances
  • Compliance issues; any obligations the landlord has and the ability to make changes to the apartment regardless of the tenant’s consent
  • Termination; all conditions of contract termination for the landlord and the actions required to terminate from the lease

What You Need for a Security Deposit by Law

Security deposits are generally regulated by state laws and rules, so landlords should be aware of the various legal requirements in their jurisdiction. While the legal requirements differ from state to state, the landlord-tenant relationship is regulated at the federal level by the Federal Trade Commission (FTC) under the Federal Trade Commission Act, 15 U.S.C. § 41 et seq.; the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq.; the Fair Housing Act (FHA), 42 U.S.C. § 3601 et seq.; and other applicable federal statutes and regulations.
At the following links are the various state laws regulating Landlord-Tenant relations, many of which include rules and regulations specific to security deposits:
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin

How to Create a Security Deposit Contract

Begin by stating the parties’ full names and physical addresses. If a company is involved in the security deposit contract, include its legal name as well. Next, write the date in which the contract is being signed in month-day-year format. At the top of the document, note what type of contract it is. For example, it is a Residential or Commercial Security Deposit Contract if a rental space is being rented out. If a jobs is being completed, then it may be known as a Consultant Security Deposit Contract instead.
Before including any financial information, draw a line across the page one-third down to separate the information about each party from the financial information section. Include the following in this section:
At the bottom of the contract, write out the date using month-day-year format and include a signature line for both parties. In addition, include a space directly underneath to write out the individuals’ full names.
To make sure that individuals understand the terms of the security deposit contract, always keep the language simple before describing the details of the agreement. If the agreement is long or highly detailed, don’t be afraid to add additional terms or clauses. Make sure that all those involved know their responsibilities for it; for example, who should return the funds at the end of a term.

Common Pitfalls

One of the most common mistakes when creating a security deposit contract template is to fail to include all the necessary specifics regarding the amount of the deposit, the due date, and the conditions for its return. Making sure this contract template is as detailed as possible can help avoid miscommunication and misunderstandings later on. The total amount of the security deposit should be clearly defined in the contract. To minimize confusion, it’s a good idea to stick to a flat fee or to charge one month’s rent. Many people try to list specific costs that they could possibly deduct from the deposit, but this can later work against you if you decide not to take money out for those reasons.
It is important that the contact be very specific about the rules of the lease and what will happen if the rules are violated. It is also important that the document clearly states that the landlord reserves the right to withhold the deposit for specific and clearly defined reasons. Do not make it open-ended or vague , because these loops holes are what often lead to strife between the landlord and the tenant. Tenants will sometimes expect that they can get their deposit back regardless of any damage they caused or issues that occurred during their time in the residence. A security deposit contract template should not put up with this because you are protecting yourself against future issues.
Landlords should never list an arbitrary amount of time that they will hold or withhold the deposit before returning it. By being specific in the security deposit contract template about how and when you intend to return it, you will cut down on the number of times your tenants argue with you over it.

Security Deposit Contract Template

This is the security deposit contract template between the landlord and a residential tenant:
SECURITY DEPOSIT
This Lease and Security Deposit Agreement ("Lease") dated _________, 20__ between ____________hereinafter referred to as "Owner" and ___________, hereinafter referred to as "Resident."
In consideration of the mutual covenants and representations set forth herein, Owner and Resident agree as follows:

  • SECURITY DEPOSIT. Resident agrees to pay the Owner a security deposit in the sum of $___ (the "Security Deposit") which shall be due and payable at the signing of this Agreement. Owner shall deposit the Security Deposit with _____________. The Security Deposit shall be subject to the provisions of ___________ law.
  • USE OF FUNDS. Subject to applicable law, Owner shall have the right to use, commingle, or put at risk any rights or funds received from the Resident in regard to the Security Deposit, and Owner shall not be required to maintain said Security Deposit in an interest-bearing state regulated deposit account or escrow account.
  • RIGHT OF ENTRY. Owner shall have the right to enter the unit on 12 hours’ notice for the purpose of inspecting the unit, making repairs, or showing exhibit the apartment to prospective purchasers or residents. Emergency situations exist where 12 hours notice shall not be required before entering the unit.
  • WAIVER. No failure by either party to insist upon the strict performance of any one of more covenants herein or to exercise any right or remedy upon a default of the other party will be deemed a waiver of future performance of any such covenant or the default of the other party, and no waiver by either party of any provision of this Lease shall be deemed to have been made unless the same shall be in writing and signed by the party against whom such waiver is claimed.
  • MODIFICATION. This Lease may not be altered, amended, extended, or assigned except in writing signed by the duly authorized representative of both parties.
  • COVENANT. It is agreed that if Owner or Owner’s agents, servants, or representatives are required to appear or respond to any demand, notice, summons, complaint, order, or other legal document, whether civil or criminal, arising out of any act or omission of the Resident, his/her guests, agents, employees, or invitees during the term of this Lease, Owner shall be entitled to recover from the Resident all expenses incurred, including reasonable attorney’s fees, costs and expenses of investigation, preparation, and travel. The obligations of this paragraph shall survive termination of this Lease.
  • AGREEEMENT. This Lease is the only agreement made between the parties hereto; neither Owner nor his/her agents, servants, or representatives has made any representation, promise, or agreement except as herein expressly set forth as a condition precedent to the execution of this Lease. This Lease supersedes any previous agreements or discussions executed between the parties hereto.

IN WITNESS WHEREOF, a duly authorized representative of Owner and Resident has executed this Lease this ____ day of ___________, 20__.
Owner: __________________________ Resident: _____________________________

FAQs on Security Deposit Contracts

Q: Do I have to put my security deposit into an interest bearing account?
A: In most states the answer is yes. Your state may have a maximum interest rate that they will allow and many lease protections stipulate that you must pay interest on the security deposit to the tenant.
Q: If I would like to hold an extra security deposit over the statutory allowed amount, what are my obligations to get my security deposit back?
A: If you would like to hold an extra deposit above the allowed minimum amount the extra money you received is NOT a security deposit. Your state may characterize the extra funds as a President’s Deposit or last month’s rent. Check with your attorney on how to handle these funds. If you don’t separately characterize these funds they could all be considered an allowable security deposit and thus you may be required to return all of it to a tenant who is deserving.
Q: Can a landlord create their own security deposit form?
A: If your building is following the security deposit laws creating your own form is perfectly fine be sure to have an attorney review it for enforceability and readiness for litigation if necessary . It is also a great idea to add an attorney’s fees clause in your lease contract as well you may be awarded attorney’s fees should you be forced to show up in court to defend yourself.
Q: If I have a dispute with my landlord am I required to keep paying rent until I get my security deposit back?
A: No, you may place any amount owed to you by the landlord for repair losses in a rent escrow account in your state. You may not use your security deposit for rent. A landlord will be unreasonable to start an eviction over a tenant placing their security deposit in rent escrow. If a judge will start an eviction when you are holding your security deposit in your own rent escrow account then that judge is deserving to be voted out of office.
Q: Should I take photos and document when I give my security deposit to my landlord?
A: Yes, always document the condition and loss so you can use it as evidence if a landlord is unreasonable and does not keep their side of the contract at the time of move out.

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