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    Security Deposits: What Can Be Deducted at the End of a Lease?

    Security deposits are an essential part of rental agreements. Michigan landlords need to know the rules and regulations governing security deposits, such as:

    • Is there a limit to what a landlord can charge a tenant for a security deposit?
    • Is there a time limit for returning a security deposit when the lease is over?
    • What can and cannot be deducted from a security deposit?
    • What else is required by Michigan law related to landlords and security deposits?
    • What are best practices landlords can utilize to protect themselves from damage loss?

     

    Security Deposits: The Basics

     
    It’s common knowledge that most residential leases and rental agreements in Michigan require a security deposit. A security deposit is a dollar amount (usually equal to one month’s rent) intended to cover damage to the premises—beyond normal wear and tear—that occurs during the lease period. Security deposits also have a secondary function: to cushion the financial blow if a tenant quits early on the lease without paying.

    Does Michigan Law Limit How Much a Landlord Can Charge a Tenant for a Security Deposit?

     
    Yes. Under Michigan’s landlord-tenant laws, the amount of a security deposit is limited to a dollar amount equivalent to one and one-half months’ rent.

    What Is the Deadline for Returning a Security Deposit After the Tenant Moves Out?

     
    Michigan law also regulates the return of the tenant’s security deposit. Landlords must return the deposit, with an itemized statement of deductions (known as the Notice of Damage), within 30 days after the tenant has moved out. (If a tenant fails to give the landlord a written notice of a forwarding address within 4 days of their move out date, the landlord does not have to provide a Notice of Damage—however, they still must return any security deposit not used to meet the tenant’s damage obligations. In practice, the RPOA recommends always sending the Notice of Damages—even if the landlord only has the address at which the tenant lived before moving.)

    If a tenant disagrees with the itemized statement of deductions, he/she must dispute the landlord’s stated deductions within seven days of receiving the statement (and/or security deposit balance) or give up any right to dispute it. (In reality, there is nothing to prevent the tenant from bringing a small claims dispute against the landlord regarding the disposition of the security deposit at any time.)

    Notification Upon Tenant Possession

     
    Michigan requires that landlords must furnish in writing the landlord’s name and address for receiving communications and the name and address of the financial institution or surety where the tenant’s deposit will be held. This information must be provided to the tenant within 14 days of the tenant’s taking possession of the rental.

    Notice of Deduction/Damages

     
    Michigan landlords must provide tenants with notice of damages prior to deducting any damage costs out of the security deposit. Michigan landlords are also required to alert tenants to their obligation to provide, in writing, a forwarding mailing address to the landlord (within four days after termination of occupancy). The notice shall include the following statement in 12 point boldface type which is at least 4 points larger than the body of the notice or lease agreement: “You must notify your landlord in writing within 4 days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure.” Failure to provide the information relieves the tenant of their obligation relative to notification of the landlord of his forwarding mailing address.

    A copy of the Notices of Damages can be downloaded here.

    What Costs May the Landlord Deduct from the Security Deposit?

     
    Landlords may charge tenants for cleaning and/or repairs necessary to restore the rental unit to its condition at the beginning of the tenancy, with the following caveat: landlords may not use the tenant’s security deposit to cover the costs of ordinary wear and tear or regular maintenance. Charges must be limited to costs incurred due to damages or excess, negligent filth. Charges may also include unpaid past due rent or cost for utilities that are owed the landlord where the tenant was responsible for paying the landlord for specific utilities.

    Damage vs. Regular Maintenance

     
    Tasks landlords undertake to ready a rental unit for a new tenant after an old tenant moves out constitute routine maintenance. Here are some examples:

    Cleaning

     
    Regular Maintenance: If the landlord’s standard practice is to have the entire unit professionally cleaned between tenants, then the landlord can’t charge the prior tenant to clean, because the cleaning is considered routine maintenance.

    Damages: If the tenant never cleaned the place during the entire lease period, and the landlord is charged extra by the cleaning service because of the filthy condition. Here, the landlord could assign the extra charge to the tenant’s security deposit, but not the entire cleaning charge.

    Note: Any expectations that the landlord has for the tenant to clean the rental property prior to moving out should be stated in the lease.

    Carpet

     
    Regular Maintenance: If the landlord’s standard practice is to have the carpets steam-cleaned between tenants, then the landlord can’t charge the prior tenant to steam-clean, because the cleaning is considered routine maintenance.

    Damages: If the tenant stained the carpet so badly that normal carpet cleaning doesn’t work, the landlord can probably charge the tenant to replace the carpet (at a depreciated cost related to the carpet’s remaining life expectancy). Here, the landlord would not be able to charge the full replacement cost unless the carpet was brand new. Furthermore, if the carpet is old and worn to the point that it needed replacing anyway, then the landlord can’t charge the tenant to replace it.

    Note: For more detailed information on carpet issues, please see RPOA’s related article Can I Charge for Damaged Carpet?

    Paint

     
    Regular Maintenance: Again, the verdict here depends on the landlord’s standard practice. How often does the landlord typically repaint rental units? If the tenant has lived in the unit for three years or more, a paint job is probably considered routine maintenance and the landlord is not entitled to deduct money to cover painting costs.

    Damages: If the landlord recently painted the unit, and the tenant left the walls in a state of filth, or let their children draw on them, or haphazardly re-painted the walls themselves—then the landlord will need to repaint sooner than normal. Here, the landlord has a strong case for deducting the cost to re-paint from the security deposit.

    Other Damages

     
    As mentioned in the above section about carpet, costs for damaged property items can only be recouped at depreciation rates. Since all products have a specific “life expectancy” (typically determined by the manufacturer), landlords aren’t permitted to charge a tenant the full replacement cost of the item—unless the product was brand new at the time it was damaged.

    For example, if a tenant’s child damaged a two-year-old set of window blinds beyond repair, and the life expectancy of the blinds is three years, then the landlord could only charge the tenant 33 percent of the cost to replace the blinds.

    Page 57 of U.S. Department of Housing and Urban Development Appendix 5D provides a list of various items and their life expectancy:

    Hot Water Heaters10 years
    Plush Carpeting5 years
    Air Conditioning Units10 years
    Ranges20 years
    Refrigerators10 years
    Interior Painting – Enamel5 years
    Interior Painting – Flat3 years
    Tiles/Linoleum5 years
    Window Shades, Screens, Blinds3 years

    Best Practice: Before and After Photos and Videos

     
    Landlords (and tenants) can protect themselves in a future security deposit dispute by taking before-and-after photos and/or videos of the unit. This evidence is essential to building a case.

    Furthermore, any landlord who intends to keep all or part of a security deposit should be able to demonstrate the pristine condition before the tenant moved in—and the poor condition at move-out time.

    Recovering Excess Costs

     
    What happens if tenant’s security deposit doesn’t cover everything owed to the landlord? In these circumstances, the landlord may sue the tenant in small claims court. Landlords should be aware that if and when a damage case goes in front of a judge, the final award may not be the damage amount that the landlord requested—or anything at all. Every court is different, as well as every judge’s ruling. Judges have a great deal of discretion when it comes to awarding damages.

    Often, judgments for monies owed aren’t difficult to obtain. Collecting that money is a different story. Garnishments are a legal tool that many landlords find useful in these situations. For more information on how to obtain a garnishment, please see RPOA’s related article here.

    What if the Tenant Disputes the Disposition of the Security Deposit?

     
    If the tenant disputes the disposition of the security deposit and the landlord wishes to challenge the dispute, the landlord must do one of two things:

    1. Work out an agreement in writing with the tenant on the final disposition of the deposit.
    2. Sue the tenant in small claims court within 45 days of the tenant’s termination of occupancy.

     

    Read Michigan’s Law on Security Deposits

     
    Michigan’s relevant security deposit statute(s) can be found at the Michigan Legislature’s website, under Michigan Compiled Laws § § 554.602 to 554.616. Please note: individual cities and counties might have different landlord-tenant and security deposit laws than those at the state level in Michigan.

    Also, the Michigan Legislature’s tenant guide is available by clicking here. For more on leases, contract law, security deposits and notices of damages, plan to attend the RPOA’s course on leases and contract law. Check the schedule of courses here. Most courses also earn CE credits for licensed real estate professionals.

     

    Disclosure: This Knowledge Base article is accurate as of the last update. Laws and policies are subject to change. If you have any questions, please call the office. Click here for contact information.