The landlord-tenant laws that apply to security deposits are statutes that every Connecticut landlord and tenant should know and understand. Landlords have a responsibility to be accountable for tenants’ security deposit and are required to stay in compliance with the established laws. It helpful for tenants to be aware of the security deposit laws in the state and their legal rights when renting a unit.
The Purpose of a Security Deposit
Under CGS §47a-21 (11), “security deposit” refers to any advance rental payment, or any installment payment collected for residential units and public housing. This can also include a pet deposit. This doesn’t include an advance payment for the first month’s rent or a key deposit or special equipment deposit.
A security deposit serves as a safety net for landlords in case of any unpredictable events that could lead to financial losses caused by the actions of a tenant. It may be that the tenant doesn’t adhere to their lease obligations by skipping on the rent or damaging the rental property. A security deposit ensures that a landlord is compensated for losses.
Allowable Security Deposit Charge
In Connecticut, per CGS §47a-21 (14)(b)(1)(2), landlords cannot charge a tenant who is under sixty-two years of age, a security deposit amount that is over two months’ rent. Tenants sixty-two or older cannot be charged a security deposit amount that is over one month’s rent. If a tenant becomes 62 after paying a security deposit that is more than one month’s rent, upon request, can have the portion of the deposit that is more than a month’s rent refunded.
Storing the Security Deposit
Under Connecticut law, CGS §47a-21 (3)(h)(1) landlords are required to immediately deposit the full amount of the security deposit into one or more escrow accounts at a financial institution for the tenant’s benefit. A landlord is not allowed to withdraw funds from the escrow account except to return the security deposit and interest gained to the tenant, to cover all damages after tenancy expires, to make a transfer of the full amount of the deposits, as well as other specific instances established in CGS §47a-21 (3)(h)(2).
Security Deposit Interest Payment
Connecticut landlords are required to pay interest annually on a tenant’s security deposit at the rate determined and published by the Banking Commissioner yearly. The interest rate is adjusted each year and must be paid on the anniversary date of a tenancy either directly to tenants or as a credit towards tenants’ next month’s rent.
- The rate can never be less than one and one-half percent, but rounded to the nearest one-tenth of one percentage point. If the tenancy ends before the anniversary of when the lease was signed, landlords have 30 days to pay the interest gained to the tenant.
- Tenants are not entitled to any interest for any month in which the tenant didn’t pay rent for more than ten days, unless a late charge was imposed by the landlord.
- Furthermore, landlords are not allowed to charge tenant an increase in rent simply because they are required to pay an interest on the security deposit. See CGS §47a-21 (i)
Returning Security Deposit
Connecticut landlords have thirty(30) days from the day the tenancy ends to provide a refund of a tenant’s full security deposit plus earned interest, or the balance of the security deposit, along with any earned interest after deduction for any damages that the tenant has caused by failing to adhere to the rental obligations.
However, the tenant must provide the landlord with a forwarding address in order to comply with the time requirements. If a written notification of a forwarding address is provided at a later date, the landlord is not required to return the remaining security deposit funds or give an itemized list of damages to the tenant until fifteen (15) days of receiving the new information.
Landlords must also provide tenants with a written statement itemizing the nature of the damages and amount for repair cost, or rent delinquency. See CGS §47a-21 (2)
Failure to Return a Security Deposit
A landlord who fails to comply with the security deposit return requirements will have to pay the tenant twice the amount of any security deposit paid. If the only violation committed by the landlord is not returning the accumulated interest, as established by CGS §47a-21 (d)(2), the landlord is liable for ten dollars or twice the amount of the accumulated interest, whichever is greater.
Tenants can sue the landlord in small claims court if:
- The landlord doesn’t respond to the request for a return of the security deposit within thirty (30) days
- They dispute the damages to the rental property itemized by the landlord, or the amount charged for the repairs
- The landlord only returned part of the deposit without giving a list of deductions. See CGS §47a-21 (g),
Allowable Deductions from a Security Deposit
A Connecticut landlord may deduct from the security deposit the following:
- Unpaid rent
- Unpaid utility bills
- Major cleaning costs
- Payment for property damage
- Any other breach of the lease causing financial loss to the landlord
Applying Security Deposit as Last Month’s Rent
A security deposit is not meant to be applied to the last month’s rent. The security deposit is not rent money and wouldn’t simply be used to cover tenants’ last month’s rent if they vacate without paying. It’s meant to cover damages/losses.
How to Get a Full Refund of Security Deposit
When a tenant’s lease ends, a full security deposit can be returned if there is no damage to the rental property, rent is paid in full and all charges in the rental agreement are covered.
Security Deposits and Tax Filing in Connecticut
A security deposit can either be held to cover losses suffered by the landlord or refunded to the tenant. Depending on which happens at the end of the tenancy, determines how a security deposit is treated for tax purposes.
- Accounting for Security Deposits
Security deposits are treated as either assets or liabilities when filing taxes. It is not automatically rental income when first received. Tenants shouldn’t deduct security deposits as expenses when filing their taxes and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant at the end of the tenancy. Security deposits are not income until they become as such.
- Security Deposit Write-off
Usually, landlords cannot deduct security deposits when filing taxes as expenses before they are used for one purpose or another. If a landlord withholds part or all of the security deposit for unpaid rent, then that amount should be included as income for that year when filing taxes. Forfeited deposits should be declared as income on a landlord’s tax return. A deposit is taxable income only if and when a landlord has no obligation to refund the tenant.
“Normal Wear and Tear” vs. Damage
- “Normal wear and tear” is deterioration that occurs from the intended use of the rental property and without negligence, carelessness, accident, misuse, or abuse of the premises or contents by the tenant, members of the household of the tenant, or the invitees or guests of the tenant. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value, normal function of the rental unit. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
New Property Owner Responsible for the Security Deposit
CGS §47a-21(3)(e) highlights that the new owner of a rental property is liable for returning the tenant’s security deposit, all or in part, when the tenancy ends. This also includes the interest gained on the security deposit.
The Law on Security Deposits in Connecticut
For more detail on Connecticut security deposit law, see Chapter 831, Connecticut General Statutes 47a-21.
Tips for Connecticut Landlords on the Right Practices for Security Deposits
- Charge tenants under sixty-two years of age a security deposit amount that is no more than two months’ rent; charge tenants sixty-two or older a security deposit amount that is no more than one month’s rent.
- Return security deposits within 30 days of lease termination with an itemized written statement of any deductions and earned interest
- Avoid paying twice the amount of the original security deposit by returning the security deposit within the required timeframe
- Withhold security deposits for any financial losses, damage or other expenses
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
It’s beneficial for both landlords and tenants alike to have a working knowledge of Connecticut security deposit laws. Landlords can protect their assets, and tenants can protect their rights and avoid being taken advantage of by landlords. Security deposit laws can change, which makes it essential to stay up-to-date on the statutes.