How To Properly Collect and Hold a Security Deposit
Collecting a Security DepositTwo receipts to the tenant are required. The first receipt should indicate 1) the amount of money received; 2) the date the money was received; 3) the name of the person receiving the money; 4) the name of the landlord, if different than the person receiving the money; 5) a statement telling tenant that he/she is entitled to receive interest on the security deposit.
The second receipt should be given to the tenant, after the security deposit is deposited, stating 1) the location and name of the bank where the security deposit was deposited, and 2) the account number of the account where the security deposit money was deposited.
Make sure to keep copies of all receipts.
Holding a Security Deposit - Initial StepsThe security deposit is the tenant's money that the landlord is holding onto. The law requires that the landlord hold the security deposit in a separate account, an account that is protected from the landlord's creditors, with a name on the account that makes it clear that the money does not belong to the landlord.
Holding a Security Deposit - On-Going StepsAfter the security deposit has been collected, receipts given and deposited into a separate account, the landlord has an ongoing duty to pay the tenant interest on that security deposit at either the lower of 5% or the amount the deposited funds actually accrued, at the end of each year of the tenancy. The landlord can either pay this accrued interest amount to the tenant directly, or can allow the tenant to deduct the interest amount from the next month's rent balance.
Any landlord who takes a security deposit must keep a written record of all the deposits he received from the tenant for 2 years after the tenancy ends. These records include a detailed description of what damage had been done, when the repairs were made, how much repairs costs and receipts for the repairs. The landlord must make these records available to any tenant or prospective tenant who asks to see them.