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Security Deposits in Residential Leases

Pennsylvania’s Landlord Tenant Law relating to security deposits in residential leases is deceptively simple, but almost universally misunderstood. Tenants think of the security deposit as security for the payment of their last month’s rent, the one right before they move out. It is not for that purpose, but to cover damages to the property caused by the tenant and the tenant’s family during their occupancy.

What a Landlord is Legally Allowed:

A landlord is authorized to require up to two month’s rent in advance as a security deposit, for the first year of a residential lease. There are strict provisions in the Landlord-Tenant Act which require, among other things, for the landlord to deposit the funds into an interest-bearing account, but that is only after the second anniversary of the lease, which is to say, the first day of the third lease year. Even then, this provision applies only to all funds over $100 deposited with the landlord, which the landlord is required to deposit in a federally-insured banking institution, and there is no requirement that there be any particular interest rate on such funds. Interest rates are so absurdly low right now that it is more trouble than it is worth to deal with this administratively. In practice, most landlords ignore this legal provision, and simply give the vacating tenant the balance of the security deposit plus prorated interest at an assumed nominal rate, rather than putting the money into a bank account.

The real point of contention comes when the tenant is about to move out. In order to trigger the landlord’s obligation to return any portion of the security deposit, the tenant must provide written notice of the tenant’s forwarding address, and then, “surrender possession” of the premises, generally by giving the keys back to the landlord. If a tenant has provided written notice of the forwarding address, and given the landlord the keys, the landlord has a thirty-day period after that to give a tenant a written list of damages the landlord is claiming were done to the property. Assuming the damages are less than the amount of the security deposit, the written list from the landlord must be accompanied by a payment to the tenant by the difference between the deposit and the cost of the damages. If the tenant is behind in the rent at the time he or she moves out, the landlord is fully within his or her rights in refusing to return the escrow fund to the extent of the unpaid rent, as well as any physical damages to the premises.

The Landlord’s Problem:

It is frequently difficult for a landlord to know, within 30 days after a tenant has vacated, exactly to what extent the premises have been damaged. This is because getting plumbers, electricians, carpet people and other workmen out to the property to give damage estimates (let alone actually to do the work) is subject to the vagaries of their calendars, which are frequently very busy. Nonetheless, the landlord should give the tenant his or her own estimate of damages, within that 30-day period, because once the 30 day period has elapsed, and if the landlord has failed to provide the list and/or return of the balance of the security deposit, the tenant may sue for double the amount of the security deposit.

Pennsylvania courts have not been sympathetic to landlords in that area of security deposit law, frequently finding ways to avoid the technical restrictions which might result in a forfeiture of the tenant’s right to a return of all those funds within 30 days (such as the precondition of the tenant’s provision of written notice and a forwarding address to the landlord). As a warning to landlords, they should never knowingly misrepresent the amount of damage done to a residential rental property. There was a case in 1997 when the Pennsylvania Superior Court not only upheld a double recovery on part of the tenants against the landlord, the court also found that the landlord violated the unfair trade practices/consumer protection law, by deliberately overstating the amount of the damage, which triggered a provision to allow the tenant to claim three times the actual damages , as well as attorneys fees, which came to nearly $5,000 in that particular case.

As a practical pointer, anytime a tenant vacates a property, or is evicted, both the landlord and the tenant should take photographs of the property inside and out, so as to provide later proof of the presence or absence of either the damage to the property, or any personal property which might have been left behind by the tenant.