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When can you as a landlord retain a tenant's security deposit?

Landlords across Pennsylvania work hard and invest their own time and capital to help themselves develop a sustainable stream of mostly passive income. Once you have tenants in a property, they will continue to pay rent every month, which can cover your costs for the mortgage, insurance, taxes and maintenance of the building. Most tenants will pay their rent and maintain a clean and safe home in your rental unit.

Unfortunately, there are those individuals who simply don't engage in the proper care of the place that they live. These individuals could cause damage to your rental unit and leave you wondering if you can retain their security deposit. Understanding how Pennsylvania law expects you to handle the security deposit can help you ensure compliance and avoid financial complications.

There are limits to how much you can charge for a security deposit

When you first collect the security deposit, you want to make sure that you do so appropriately. The security deposit for a tenant who is just moving into a unit can be up to two months' worth of rent. However, you may only retain that full amount for the first 12 months that a tenant lives in your unit. Tenants in their second or subsequent year should only have to worry about maintaining a security deposit that represents one month's worth of rent.

Overcharging for the initial deposit could leave you in a vulnerable position if things become contentious with your tenant after they move out. Any funds you collect as a security deposit must be put in a special escrow bank account, which means that neither you nor the tenant may access them until the termination of the lease. Alternatively, you can post a guaranteed bond for the deposit.

You have to return the security deposit or a detailed explanation of what you used it for

When a tenant moves out, provided that they did so in compliance with the lease and have paid their rent in full, you will have to return the entire security deposit to your tenant. You have 30 days to do so before you wind up in violation of Pennsylvania law.

If there have been damages to your property or if the tenant either breached the lease or did not pay their final month's rent, you may have the option of retaining some or all of the security deposit to offset your financial losses. However, you must document damages to your property if you are retaining the security deposit due to the cost of repairs.

Standard wear and tear to a unit would not justify the retention of the security deposit. Only serious and unwarranted damages, such as holes in the wall, smoke damage to the paint or burns in the carpet will justify retaining the security deposit.

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