Maryland Security Deposit Law

Key Takeaways

• Follow Maryland's security deposit limits and storage requirements. Landlords may collect no more than two months' rent as a security deposit and must store qualifying deposits in a separate, interest-bearing account in accordance with Maryland law.
• Provide required documentation and maintain accurate records. Issuing a security deposit receipt, keeping copies of documentation, and conducting proper move-in and move-out inspections help landlords remain compliant and support legitimate claims if disputes arise.
• Make deductions carefully and return deposits on time. Security deposits may be used for allowable expenses such as unpaid rent, excessive damage, or other lease-authorized costs, but landlords must provide an itemized statement and return any remaining security deposit within the required 45-day deadline.
• Understand your responsibilities during ownership changes. If a rental property is sold while a tenancy is active, landlords must properly transfer the tenant's security deposit or return it as required by law to avoid continued liability and potential legal penalties.

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 protect the landlord against a myriad of liabilities during the tenant's occupancy. 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 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 at the end of the lease.

In this blog, our property management experts will provide landlords answers to some of the commonly asked questions regarding security deposit laws in Maryland, including naviagating tenant needs plus reasonable attorney's fees to protect your investment.

1: Security Deposit Limit in Maryland

For residential leases signed on or after October 1, 2024, landlords may generally charge no more than one month's rent as a security deposit. A landlord may collect up to two months' rent only if the tenant qualifies for utility assistance through the Department of Human Services, the lease requires the tenant to pay utilities directly to the landlord, and both parties agree in writing to the higher deposit amount.

For leases signed before October 1, 2024, the maximum security deposit remains two months' rent. These limits apply regardless of the number of tenants on the lease. For example, if a lease signed after October 1, 2024, has a monthly rent of $1,500, the standard maximum security deposit is $1,500, unless all of the legal requirements for charging up to $3,000 are satisfied.

If a Maryland landlord charges their tenant more than the legal maximum, 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 maintaining a separate, federally insured account to hold tenants' security deposits. The account must be used exclusively for security deposits, not rent payments, and landlords must deposit the funds within 30 days of receiving them.

In most cases, security deposits of $50 or more that are held for at least six months accrue interest monthly (without compounding). The applicable interest rate is the greater of the daily U.S. Treasury one-year yield or 1.5% annually.

Maryland law also allows tenants to purchase a surety bond as an alternative form of security. However, landlords are not required to accept a surety bond in place of a traditional security deposit. Whether to accept this form of payment is entirely at the landlord's discretion.

3: Written Notice of Security Deposit Receipt

Maryland law requires landlords to provide tenants with a written receipt for any security deposit collected, although the receipt may be included in the lease agreement. Landlords who fail to provide the required receipt may be liable for a $25 penalty.

The receipt must explain the tenant's rights to request a move-in inspection within 15 days of occupancy and to attend the move-out inspection by notifying the landlord through certified mail at least 15 days before moving.

The receipt must also outline the landlord's responsibilities, including conducting the move-out inspection within five days before or after the tenant's move-out date, providing an itemized list of any security deposit deductions within 45 days, and returning any remaining deposit within the same timeframe by first-class mail.

It must also state the potential penalties for violating Maryland's security deposit law, and landlords are required to keep a copy of the receipt for two years after the tenancy ends, or following an eviction or property abandonment.

4: Maryland Rental Deposit Deductions

Much like everywhere else, Maryland landlords can withhold part or a portion of the security deposit. Common reasons for doing so include:

• Unpaid rent: a key responsibility commercial and residential tenants have to the Maryland lease agreement is the payment of rent. So, if they don’t pay it, the law allows you to 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, and the deduction cannot exceed the actual costs.
• Lost rental income: life happens, and a tenant may choose to break their lease early. In such a case, to recover the lost money, you may have to withhold 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. The law stipulates that the inspection be conducted within five days before or after the tenant's intended move-out date.

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 condition of the leased premises and give the tenant time to fix any potential violations.

6: Security Deposit Return Deadline

Maryland security deposit law allows landlords 45 days after the end of a lease to return all or part of the deposit. It’s also within this period that landlords should return any interest accrued on the deposit. The landlord must return the interest, otherwise they'd be in breach of their responsibilities under the law and liable to face penalties or be taken to court.

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, the court may order you to give the tenant up to 3X the amount of the security deposit withheld.

If a landlord does not 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 before the end of the lease agreement, a landlord has two options: The first option is to transfer security 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 amount of the tenant's security deposit..
• 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 court 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.

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.