What is a Security Deposit?

What is a Security Deposit?

A security deposit is money that belongs to the tenant but held by the landlord for protection against damages. The tenant is responsible for the rental payments for the entire length of the lease. When the lease has expired, the tenant should have the security deposit returned to them minus any damages to the property. All or part of your security deposit can be withheld at the end of your lease term if you: 

• Damage the premises

  • Fail to clean properly
  • Fail to pay your last or any rental payment
  • Fail to provide proper notice to the landlord that you are moving out

Without the agreement of the landlord, the security deposit may not be used as the last month’s rent. The security deposit should not be used to pay for damages from other tenants before you moved in or normal wear and tear on the property. See Return of your Security Deposit.

Limits on the Amount of the Security Deposit

How much is a security deposit? Pennsylvania law limits the amount of security deposit a landlord can demand. During the first year of the lease, the security deposit cannot be more than two months’ rent. A landlord might ask the tenant to pay a security deposit plus “the last month”. Regardless of what the landlord may call it, this “last month’s rent” payment is still part of the two-month maximum security deposit for the first year.

During the second year or during any renewal of the original lease, the security deposit cannot exceed one month’s rent. If a tenant’s rent increases, the landlord can also increase the security deposit to equal one month’s rent at the new rate for the first five years of the lease. After five years, the landlord cannot increase the security deposit even if the rent is increased.

If a tenant has paid two months’ security deposit (or one month’s security deposit and “the last month’s rent”), then after the first year, the tenant may ask the landlord to return the amount of money held that is greater than one month’s rent. This is done by writing a letter requesting this money and keeping a copy of the letter. The letter should be sent by certified mail, “return receipt requested,” so that there is proof that the landlord received it. A tenant should follow-up the certified mail with regular mail if the tenant does not get a signed receipt returned from the post office.

Interest on the Security Deposit

If more than a $100 security deposit is collected:

  1. The funds must be placed in a separate account
  2. The account must be in an institution regulated by the Pennsylvania or Federal banking authorities
  3. The landlord must notify the tenant in writing with the name and address of the depository (bank) and amount of deposit
  4. After the second year, the interest earned on the tenant’s money (less a 1% administrative fee to landlord) must be paid to the tenant annually on the anniversary date of the lease
  5. The law does not specify how much interest a tenant must receive

Remember, today’s interest rates are very low. Therefore, after a landlord deducts the 1% fee, there may be no interest due to the tenant. However, as a matter of doing good business, a landlord should notify a tenant in writing that there is no interest due.

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