Landlords

The Security DepositThe security deposit is an amount ofmoney paid by the tenant to the landlord otherthan the first rent payment (for whateverperiod is established in the lease: weekly rentpayment, monthly rent payment, semiannualrent payment, and so on). The security depositremains the tenant’s property, but is held bythe landlord for the term of the lease to ensurethat the tenant pays the rent due, pays theutility bills, and returns the rented property inproper condition, as required by the lease. It isheld as security as the name implies.Once the lease is terminated, the tenanthas the right to have the entire securitydeposit returned unless the landlord cansubstantiate a claim to it because the tenant:1. Owes unpaid rent;2. Owes unpaid utility bills; or3. Caused damage to the rented propertybeyond reasonable wear and tear.Under Michigan law, both a tenant and alandlord have duties and must perform specificacts regarding the security deposit.Understanding the duties and taking action arecrucial. The law requires mandatory noticeprovisions, written communications, mailings,and strict compliance with time limits. If theduties are not performed precisely, the tenantrisks losing the return of his or her securitydeposit and the landlord risks losing a claim toit. This chapter explains the duties and thenecessary actions that must be taken.A. COLLECTING THE SECURITYDEPOSIT AT THE BEGINNINGOF THE TENANCYQ1 Is there a limit on the amountthat a landlord may collect as asecurity deposit?Yes. The law states that a security depositshall not exceed 1 1 ⁄2 times the monthly rent.Example: If a landlord charges $500 amonth for rental property, the maximumthe landlord may collect as a securitydeposit is $750 ($500 x 1.5 = $750).Q2 What exactly is considered a securitydeposit?Any prepayment of rent—other than for thefirst full rental payment period established inthe lease—and any refundable fee or depositare considered by law to be part of thesecurity deposit.Sometimes the lease requires that both thefirst and last months’ rent be paid before atenant moves in. If this is the case, the lastmonth’s rent would be considered a securitydeposit. Sometimes, too, additional fees ordeposits are charged to hold the rentalproperty, for credit checks, for pets, forcleaning, for keys, for mailboxes, for storage,and for many other reasons. While these feesor deposits may not be called “securitydeposits” in the lease, if they are otherwiserefundable, they are still considered by law tobe part of the security deposit and subject tothe strict rules that Michigan has adopted—including the limit on the total amount that alandlord may collect.Q3 Is there a difference between a feeand a deposit?Yes. The law defines the term “securitydeposit” and limits the amount that may becollected (not to exceed 1.5 times the monthlyrent). Refundable fees are deemed—bydefinition—to be security deposits.Nonrefundable fees are not; and they can beassessed in any amount for any reason but thereason and matters covered by the fee must beclear. A nonrefundable fee may not covermatters also covered by refundable fees andmay be charged in any amount as long as thetanant accepts them by undertaking thetenancy.Example: The monthly rent is $500 andthe lease calls for a $750 security deposit.In addition to the security deposit, thelease calls for a $100 refundable snowremoval fee for “removing snow from anycommon area” and a nonrefundable $250community fee for “costs of landlordsponsoredsocial events and common-areasnow removal.” Because the $100 snowremoval fee is refundable, it would beconsidered part of the security deposit and7