A security deposit is money a tenant gives you when they move in that you may have to return to the tenant after the tenancy ends. A security deposit is the tenant’s property, unless you establish a right to all or part of it for one of these reasons:
- The tenant has not paid all rent owed
- The tenant has not paid all utility bills owed and you have to pay them so the next tenant can have utilities
- The tenant damaged the rental unit beyond normal wear and tear
Security deposits are different from fees because they are generally refundable. A fee is money that you charge a tenant that is not refundable. Some examples of fees are pet fees and cleaning fees.
Limits on Security Deposit Amounts
Michigan law sets a limit on security deposits. The most you can ask for a security deposit is one-and-one-half times the monthly rent. For example, if you set rent at $1,000 a month, your security deposit can't be more than $1,500.
Asking for a Security Deposit and Notice Requirements
Security deposit information is usually in a lease. If not, you have 14 days from when the tenant moves into the home to ask for one. No matter how you ask for it, the law says you must give the tenant specific information about a security deposit, including a written notice that says:
You must notify your landlord in writing within four (4) days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure.
This notice must be at least 12-point bold font and at least four font sizes bigger than the rest of the lease. For example, if the lease is in 12-point font, the notice should be in 16-point font.
The notice must also give the tenant your name and the address where they should send any communications. The notice must tell the tenant where the money will be kept, usually at a bank or credit union.
If you do not give the tenant the notice with all the information, you cannot make them follow the four-day forwarding address rule mentioned in the notice.
When the tenant moves in, you must give them two blank copies of a move-in checklist. The checklist must list every item in the home. It helps track damage to the rental home while the tenant is living there. The first page of the checklist must say in 12-point bold font:
You should complete this checklist, noting the condition of the rental property, and return it to the landlord within 7 days after obtaining possession of the rental unit. You are also entitled to request and receive a copy of the last termination inventory checklist which shows what claims were chargeable to the last prior tenants.
Once the tenant completes the checklists, they should give one to you and keep the other. If the tenant reports a problem on the checklist that you later fix, you can record that on your copy of the checklist.
Returning the Security Deposit
Once the tenant moves out, use the move-in checklist to check for new damage. If possible, do a walk through inspection with the tenant right before the tenant moves out. If there is damage, make an itemized list of damages. Include the estimated cost of repairs. If the tenant owes you for rent or unpaid utilities, include them and any damages in an “itemized list of damages.”
The notice of damages must say, “You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages.” This statement must be at least 12-point bold font and be at least 4 points larger than the body of the notice.
You have 30 days from the time the tenant moves out to either return their security deposit or send them a list of damages. If you do not send the tenant the list of damages within 30 days, that means you agree there is no damage, and you must return the entire security deposit right away.
Once the tenant receives your notice, they have seven days to respond and disagree with the amount they owe. If the tenant doesn’t respond in that time, it may relieve you of having to file a court case to keep the deposit.
If the tenant disputes the amount in the notice, you might be able to negotiate with the tenant about an amount you are both comfortable with. If you do not come to an agreement, you have 45 days from the date the tenant moved out to file a court case for all or part of their security deposit. If a judge agrees the tenant owes you money, they will award you a money judgment for the amount.
What Happens if I Do Not Give the Security Deposit Back?
If you do not start a court case or give the tenant their security deposit back within 45 days from the date the tenant moved out, they can sue you for double the amount of the security deposit if the tenant has taken the steps the security deposit law requires, such as providing a forwarding address (if you gave the tenant the information about providing that address).
What if the Tenant Does Not Take the Steps the Law Requires?
Even if you followed the law's requirements, the tenant could still sue you for the portion of the security deposit she claims you owe her if you keep more of the deposit than what is necessary to cover any unpaid rent and damages beyond normal wear and tear.
Security Deposit Rules Cannot Be Waived
The laws on security deposits cannot be waived by you and the tenant. This means even if a tenant agrees to a larger deposit or making the return of the security deposit depend on something other than the law allows, you cannot enforce that agreement.