Key Takeaways:
Maryland limits security deposits to no more than two months’ rent. Landlords who collect more than the legal maximum in security deposits may face financial penalties.
Landlords must follow specific handling requirements. Security deposits must be properly held, tenants must receive required notices and receipts, and tenants have certain inspection rights.
Deductions are restricted to valid tenant-related expenses. Security deposit deductions may include unpaid rent, lease violations, and damage beyond normal wear and tear, but deductions must be justified and documented.
Security deposits generally must be returned within 45 days of move-out. Landlords must provide an itemized statement of any security deposit deductions, and failure to comply with the law can result in substantial penalties.
As a landlord, you have a right to collect a security deposit under Maryland Code Annotated § 8-203 and § 8-203.1. Be that as it may, you must abide by the Maryland landlord-tenant laws in doing so.
Here is everything you need to know regarding the Maryland security deposit laws.
How Much Can a Landlord Collect as a Security Deposit in Maryland?
As a landlord, there is a limit to how much you can collect as a security deposit in Maryland from your tenants. Under the Maryland security deposit law, you must not collect any amount beyond the equivalent of two months' rent as a maximum security deposit.
You can think of a security deposit as first and last month's rent, but unlike rent, a security deposit does get returned to the tenant if repairs do not exceed the full security deposit funds.
If the tenant pays each month's rent at an amount of, say, $1,200 per month, then you can ask for a maximum of $2,400. If you the landlord charges beyond this security deposit limit, you may be liable to pay reasonable attorney fees and hefty penalties.
There are actual costs to exceeding the maximum security deposit amount, such as, having to pay the tenant up to 3X the excess amount, plus reasonable court and attorney fees.
Do Landlords Have to Store the Tenant's Security Deposit in Any Particular Way?
Yes, there are rules on how Maryland landlords must store the security deposit. You have three options: either store the security deposit in an interest-bearing account, hold it in an insured certificate of deposit, or purchase a surety bond.
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If you're storing it in an interest-bearing account, you must follow the following rules under the security deposit law:
You must store the tenant's security deposit in a separate account, which is specifically meant for deposits. You must do this within 30 days of receiving it
You must store the security deposit ($50 or more) in an interest-bearing account. The account must accrue interest at a rate of at least 3% annually. You won't, however, have to pay the tenant any interest if the deposit is below $50 or held for less than six months.
You may also hold it in an insured certificate of deposit at a financial or banking institution. The other option of storing the tenant's security deposit is by posting it as a surety bond.
Do Maryland Landlords Have to Notify Their Tenants After Receipt of the Security Deposit?
Yes, this is a requirement under Maryland security deposit law. You must provide your tenants with a receipt after receiving their security deposit.
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You can include it in the written lease agreement, but must provide written notice to the tenant of the following:
The tenant has a right to request the landlord to inspect the premises within 15 days of the start of the tenant's occupancy. In the checklist, you must take note of any damage (if any) as well as normal wear and tear.
The tenant has a right to be present during the walk-through inspection of the rental property. If that is the tenant's intention, they will need to provide the landlord with a written notice of tenant's presence at least 15 days before the inspection day.
The landlord is responsible for keeping a record of the security deposit receipt for at least two years after the tenant leaves.
The landlord is liable for paying the tenant $25 if the landlord fails to provide the tenant with a security deposit receipt.
What Deductions Can a Landlord Make to the Security Deposit?
As a Maryland landlord, you may keep a portion of the security deposit, or all of it, for certain allowable reasons. They include the following.
To cover unpaid rent or late fees from the tenant.
To cover monetary damages resulting from a breach of the lease agreement, such as early lease termination without legal justification by the tenant.
To cover the actual cost incurred to fix damage to the rental property exceeding normal wear and tear caused by the tenant or tenant's family.
There is no legal limit to how much a portion of the security deposit you can make in deductions for such violations. The only requirement a landlord agrees to is that the deductions from the security deposit must be reasonable.
You can even seek alternative solutions if the security deposit fails to cover all the damages such as unpaid rent and physical damages to the leased premises.
What Is the Difference Between Normal Wear and Tear and Damage?
Sometimes there is a thin line between ordinary wear and tear and damage. With security deposits involves, confusing one for the other can lead to potential conflicts and misunderstandings.
These misunderstandings can explode into legal issues such as security deposit lawsuits. Our job is help you navigate all aspects of security deposit law safely and respectfully.
“Ordinary wear and tear” is the gradual deterioration that occurs when a tenant uses their leased premises for its intended purpose, and cannot be something a landlord deducts from the security deposit money.
It's expected over time, and landlords should plan for it as a routine part of rental unit upkeep. Some examples of ordinary wear and tear include stained bathroom fixtures, lightly dirtied grout, gently worn carpets, and loose door handles.
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On the other hand, “damage” refers to destruction in excess of ordinary wear. That means damage to the rental unit that goes beyond what would be considered ordinary wear and tear and violates the lease signed by you and your tenant. This is exactly what the security deposit is for.
This kind of damage in excess of ordinary wear can and should be something a landlord charges as a deduction from the security deposit funds. But how does property damage come about?
Common examples of damage include missing fixtures, holes in the wall, damaged major appliances, and broken tiles or windows. All of these are violations of the lease signed by you and your tenant.
It typically results from a tenant's neglect, abuse, or misuse of the property and violation of the written lease. So, make sure the lease agreement requires that tenants notify you of any damage.
Understanding the difference between ordinary wear and tear and damage is crucial for both landlords and tenants when it comes to security deposits.
While landlords are responsible for repairing or replacing items affected by ordinary wear and tear, tenants may be held accountable for costs related to actual damage.
Do Maryland Landlords Need to Do a Walk-Through Inspection?
Yes! You must perform a walk-through inspection at least 5 days before or after the tenant vacates the unit. As a landlord, you must notify the tenant of their right to be present while their dwelling unit's inspected.
To protect your renter's rights, this notice must be in writing, and must state the date of the walk-through inspection if any walk-through is to occur legally.
When Must Landlords Return Their Tenants' Security Deposit?
You have up to 45 days after the tenant vacates the dwelling unit, whether through move-out or eviction, to return their portion of the security deposit, in any remains. This portion must also include any accrued interest on the security deposit.
You must send it to the tenant's last known forwarding address via first-class mail. If not returning the whole deposit, you must send the portion alongside an itemized list of deductions.
If a landlord fails to follow this process correctly, the consequences can be significant. When a landlord fails to return the deposit or provide proper documentation, they risk legal action.
If a landlord fails to comply and the security deposit's withheld wrongfully , they may be required to pay up to 3X the amount (imagine, that could be three months' rent!), plus reasonable attorney fees and court costs.
What Happens to the Security Deposit if the Landlord Sells the Property?
You may need to sell your investment property or rental unit for many different reasons. From job relocation, to investment diversification, to market conditions, and everything in between.
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Whatever may be the reason, though, you must comply with Maryland security deposit laws. In case of a change in property ownership, you'll need to do the following things.
Transfer the security deposit, minus allowable deductions, to the new owner.
Provide the new owner with the tenant's name, address, contact info, and the security deposit amount.
Conclusion
To keep yourself and your property legally compliant, you'll need to firmly grasp the state's landlord-tenant laws like the Fair Housing Act. But should you need expert help, The Maryland and Delaware Group PM can step in. We provide property owners with full-service property management services. Get in touch today to get started!
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 Please consult an attorney or the Maryland Attorney General's Office if you have any further legal queries.
