What Is A Security Deposit?

A Security Deposit can be defined as a cash deposit that a lending body requires the borrower to set aside with them as proof of their intent of paying back the borrowing. In varying cases this deposit can be placed with a lender, a seller or a landlord. Depending upon the agreed terms and conditions, the Security Deposit can be refundable or non-refundable. The basic purpose of the deposit, however, remains the same; to offer security to the recipient of the deposit. A security deposit is considered non-taxable income. It rather is treated by law in the same way as trust funds.

More often than not, landlords ask for a Security Deposit from their tenants. There is no specific limit to the amount that can be charged to the tenant by the landlord, provided they sign the agreement. However, Security Deposit that is used as the final rent payment is required to be claimed in the form of advance rent and thus is taxable when it is paid. This deposit is sometimes used by the landlord to cover the expenses that the tenant owes to him. But it is not possible for the tenant to decide by himself whether he will use the security deposit to pay any rent or cover any other expenses, until and unless the landlord also agrees to do the same.

If the tenant owes any money to the landlord, the latter has the right to keep the Security Deposit and use it for those expenses. Examples of these may typically include unpaid rent, any late fees, unpaid utility bills or any damages caused by the tenant to the property that is deemed over and above the regular wear and tear. Furthermore, the landlord has the right to sue the tenant for more money if he believes the tenant owes more than the Security Deposit. In such cases, it is more common for landlords to send the tenant’s account to a debt collection company as well as to a credit reporting agency. They will in turn contact the tenant to pay his or her dues and may lower their credit ratings, respectively.

When a tenant moves out and wants his Security Deposit returned, the landlord has up to 30 days to return the deposit. This will only happen if the tenant has been current in his rent, utilities and on other related accounts like maintenance etc. It is required that the tenant provides the landlord with a forwarding address to send the Security Deposit to. In case if the landlord does not return the security deposit, the tenant reserves the right of suing him.