Maryland Security Deposit Law
A security deposit is any payment of money, including the last month's rent paid in advance, that a tenant pays to a landlord to insure the landlord against a myriad of liabilities during the lease term or tenancy. These include unpaid rent, damages due to breach of lease, physical damage to the rental property in excess of ordinary wear and tear, as well as any other breach of the Maryland lease or rental agreement.
In Maryland, just like in other states, under landlord-tenant laws a landlord has a right to collect money in the form of security deposits from your tenant. In doing so, however, when a renter pays deposits there are rules a landlord must follow. For example, complying with the set limit for a security deposit, storing the security deposit appropriately, and returning the security deposit as per the set time.
In this blog, we’ll provide landlords answers to some of the commonly asked questions regarding deposits in Maryland, including naviagting tenant needs plus reasonable attorney's fees.
1: Security Deposit Limit in Maryland
There is a limit to how much security deposit a Maryland landlord can charge their tenant. The state of Maryland requires landlords to charge the equivalent of two months’ rent. So, supposing a landlord charges their tenant $1,500 as rent, then the most the landlord can charge them as a security deposit is $3,000 as it exceeds two months' rent.
If a Maryland landlord overcharges their tenant as it pertains to the security deposit, the landlord may face some repercussions. This includes paying the tenant up to three times the excess amount, or even charging more based on tenants' characteristics which go against the Fair Housing Act.
2: Security Deposit Interest and Storage According to Maryland Rental Law
Generally, being a Maryland landlord means you should have a separate account to store tenants' security deposits. This account should be used solely for security deposits. A landlord must also store the Maryland security deposit in an account within thirty days upon its receipt.
For security deposits exceeding $50, landlords must store them in an interest bearing account. The account must pay a 3% interest rate annually and interest should accrue every 6 months from the date of the tenant’s deposit receipt.
A landlord can also store the security deposits in federally insured financial institutions that accept insured certificates of deposit.
A tenant can also buy a surety bond that can be used as a security deposit. Surety bonds as a type of payment for a security deposit are not required to be accepted by landlords as per the security deposit law.
3: Written Notice of Security Deposit Receipt
Maryland law requires landlords to provide their tenant with a receipt indicating how much they’ve received as the security deposit and when they received it. Additionally, the following information must also be included on the receipt:
- The tenant has a right to request, within 15 days upon moving in, that the landlord inspects their rental unit and creates an itemized list of damages that exceed ordinary wear and tear.
- When a landlord inspects the rental unit at the end of the lease term, it’s the tenant’s right to be on the premises. Informing the landlord of wanting to be present is required 15 days before move out day.
If a landlord fails to give the tenant a receipt of their security deposit, they risk paying the tenant a $25 fine. As a property owner, you must therefore keep a copy of any security deposit receipt or receipts in general for at least 2 years after any tenant moves out, even receipts that have to do with exceeding ordinary wear and tear.
If a tenant purchases something for the rental while living there, that is their rental property, not the landlords' property, and is not liable to damage expenses.
4: Maryland Rental Deposit Deductions
Much like everywhere else, Maryland landlords can keep part or all of a tenant’s security deposit. Common reasons for doing so include:
- Unpaid rent: a key responsibility tenants have to the Maryland lease agreement is the payment of rent. So, if they don’t pay it, you can make the appropriate deductions from their security deposit.
- Unpaid utilities: when a tenant signs a written lease agreement, they become responsible for paying certain utilities. Upon vacating the rental unit and terminating their tenancy, they must also ensure they have cleared them. If they fail to do so, the landlord can make the necessary deductions from their security deposit.
- Excessive cleaning costs: most leases require the tenant to leave the rental unit in the same condition in which they found it, excluding unavoidable normal wear and tear. If the tenant doesn’t do so, then landlords have a right to make appropriate deductions from the tenants’ deposit to cover the cleaning costs. Landlords can only use the rental deposit for damage that excess of ordinary wear and tear.
- Lost rental income: life happens, and a tenant may choose to break their lease early. In such a case, to recover the lost income, you may have to deduct the appropriate amounts from the tenant’s deposit.
5: Maryland Tenant Walk-Through Inspections
It is within Maryland tenant's rights to a walk-through inspection. Within 5 days prior to the tenant moving out of the housing, the inspection must be performed as per security deposit law.
Once you receive the tenant’s written notice to move out, a landlord must notify them of the inspection date. The notice must be placed in writing for record purposes, ideally sent through first class mail.
The goal of a walk-through inspection is to document the property’s condition and give the tenant time to fix any potential violations.
6: Security Deposit Return Deadline
In Maryland, landlords have 45 days after a tenant moves out to return all or part of the deposit. It’s also within this period that landlords should return any interest accrued on it. If a landlord fails to return the interest, they are in breach of their responsiblities and liable to face penalties.
A landlord must comply by sending the deposit to the tenant’s last known address through first class mail. If they're sending only a portion of the deposit, the landlord must also include a written itemized list of any deductions. It is important that the tenant notifies the landlord about this address in order to get the papers.
Take note, however, that deductions made in ‘bad faith’ could attract some penalties. For example, you may end up giving the tenant up to 3X the amount wrongfully withheld.
If a landlord fails to comply with these requirements, the landlord forfeits the right to withhold any portion of the security deposit plus interest.
7: Selling Maryland Real Estate Investment With An Active Tenancy
In case the premises changes hands during a tenancy, a landlord has two options: The first option is to transfer secutiy deposits, whether in part or in whole, to the incoming landlord. If the landlord chooses to do so, then they’ll also need to notify the new owner about things like:
- The name of each tenant.
- A tenant’s last known address.
- The date you received the deposit.
- The tenant's family living in the unit.
- The security deposit amount.
- The financial institution holding the funds, as well as the interest rate.
If the landlord fails to transfer all or a portion of tenants' security deposit to the new owner, the landlord is still liable for any portion that has not been transferred plus reasonable attorney's fees.
The other option is to transfer security deposits, whether in whole or in part, to the tenant. In case of any deductions, a landlord must also include an itemized list of deductions as well.
Still need security deposit help in Maryland? If so, McKenna & Vane Property Management can help. We’re an experienced property management company serving the residents of Howard, Carroll, Frederick and Montgomery Counties.