In Delaware, the collection and return of security deposits are primarily regulated under 25 DE Code § 5514. These laws provide a set of rules that Delaware landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in Delaware
Delaware landlords can charge a maximum amount of one month’s rent as security deposit for a lease that has a term of more than one year. However, this limit does not apply to all leases. The limit on the amount of security deposit does not apply to the following situations:
- The term of the lease is less than one year.
- Lease does not have a definite term (e.g. ,month-to-month lease).
- The property or the lease is covered under federally-assisted housing programs.
- When any of the residents under the lease has a pet.
- When the unit or property being leased is furnished.
To clarify items one and two above, the landlord can charge more than the equivalent of one month’s rent as security deposit. However, the landlord is required to return the amount of security deposit in excess of one month’s rent once the actual duration lease extends beyond one year, either by renewal or month-to-month extension.
When it comes to rental units covered by federally-assisted housing programs, the limit will depend on the program that the unit falls under. Also, note that while the limit on the amount does not apply to cases in numbers one to five in the list above, the other rules to be discussed below do.
Additional Pet Deposits: The maximum amount of pet deposit the landlord can charge is one month’s rent regardless of the length of the lease. Under Georgia’s law, the landlord may ask for an additional pet deposit; however, people with disabilities who use service animals are entitled to full and equal access to housing. Thus, the tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.
The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.
Delaware’s White Cane Law requires the landlord to allow guide dogs for those who are fully or partially blind. The landlord may not charge extra for the tenant’s guide dog.
Security Deposit Holdings in Delaware
Landlords are required to place security deposits in an escrow bank account in a federally-insured banking institution that takes deposits in Delaware. This account is to be kept separate from all the landlord’s other accounts and cannot be used for other businesses.
After depositing the security deposit, the landlord is required to inform the tenant of where the security deposit is being kept. If the landlord fails to inform the tenant of the location of the latter’s security deposit within 20 days after the tenant’s request, the landlord will forfeit the deposit. If this happens, the landlord must return the full security deposit, having forfeited the same, within the next 20 days. Failure to do so will entitle the tenant to double the amount the landlord failed to return. The same applies if the landlord does not place the security deposit in an escrow account.
Allowable Deductions on Security Deposits in Delaware
At the end of the tenancy, the landlord can use the security deposit to:
- Pay for the cost of repairs for damage that is more than normal wear and tear, and cannot be covered by painting or regular cleaning.
- Pay for unpaid rent including cases of arrears, early termination or abandonment by the tenant.
- Cover the cost of expenses incurred for renovating and re-renting the premises due to premature termination of the lease by the tenant.
In the case of number three above, the landlord is only entitled to keep a maximum amount of one month’s rent.
Can the Security Deposit be used as Last Month’s Rent? The security deposit is not meant to be applied to the last month’s rent. However, if there is a written agreement between the tenant and the landlord allowing the tenant to do so, it can be done.
“Normal Wear and Tear” vs. Damage in Delaware
- “Normal wear and tear” is the deterioration that occurs from the intended use of the rental property and without negligence, carelessness, accident, misuse, or abuse of the premises or its contents by the tenant, household members, or guests on the premises. This includes 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 was intended to be used.
- “Damage” refers to the destruction that occurs because of abuse or negligence by the tenant during the course of the tenancy and can affect usefulness, value or 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.
Returning Security Deposits in Delaware
Time Frame: The landlord must return the security deposit to the tenant within 20 days of the expiration or termination of the rental agreement. If there are deductions, the landlord must provide the tenant with an itemized list of the deductions within the same 20 days.
Failure to Return the Deposit on Time: If the landlord does not return the security deposit, or what’s left of it after deductions, the tenant may be entitled to double the amount of the security deposit that the landlord failed to return.
Failure to Provide the Itemized List of Deductions: If the landlord does not provide the tenant with an itemized list of the deductions made to the security deposit, the landlord shall lose the right to make deductions .
Failure of the Tenant to Provide a Forwarding Address: If the tenant does not provide a forwarding address to the landlord, the penalty for not returning the deposit within the allowed time frame will not apply . However, the landlord is required to return the security deposit, or what’s left of it, if the tenant claims it within one year of the end of the lease.
Time Frame for the Tenant to Dispute Deductions: The tenant has 10 days from the receipt of the itemized list of deductions to dispute/object charges. Should there be any, the tenant must inform the landlord of the objections to the charges in writing. Unless the tenant does both, the tenant will be deemed to have agreed to the deductions when what was left of the security deposit was accepted.
Unclaimed deposits: The tenant has one year from the end of the lease to claim the security deposit or what’s left of it.
Security Deposits and Tax Filing in Delaware
How the security deposit will be treated tax-wise depends on whether or not the landlord gets to keep it (or part of it).
Taxable Income: Security deposits are not automatically considered income when the landlord receives them. The IRS advises to not include security deposits as income if the landlord may still be required to return the same. They only become taxable income when the landlord no longer has any obligation to refund them. For example, if the security deposit was given in 2020 but was only forfeited in 2021, then the landlord should only include it as income in 2021.
Reporting Security Deposit as Income: Whether or not security deposit should be reported as income and when to do so will depend on what it is being applied to or used as. Below are three simple rules the IRS has suggested:
- If the deposit is forfeited due to a breach of the lease or applied to unpaid rent, then the amount kept should be declared as income in the year it was forfeited or applied.
- If the security deposit is used to cover expenses that are chargeable to it, then the landlord should only include the part of the deposit used as income if the landlord includes the cost of repairs as expenses. If the landlord doesn’t include them as expenses as a matter of practice, then there’s no need to include the part of the deposit kept to cover them as income.
- There is an agreement between the parties to use the deposit or part of it as the final month’s rent, then the landlord should include it as income when the same is received.
Additional Rules & Regulations in Delaware
Mailing of Notices and Communications: All written notices, communications and other mail must be sent to the respective addresses provided in the lease .
Limit on “Application Fee”: If the landlord charges an application fee or a fee for evaluation of the prospective tenant’s creditworthiness, the fee cannot exceed $50 or 10% of one months’ rent, whichever is greater. If the landlord charges more than the limit, then the tenant will be entitled to double the amount charged.
Increasing the Security Deposit: Delaware landlords may increase the security deposit if the rental agreement allows such. If the increase in security deposit will be more than 10% of the monthly rent, payment must be spread out over the remaining term of the lease. However, if the lease is month-to-month and the increase is more than 10%, the payment must be spread out over four months.
Receipt Requirements: The landlord is not required to provide the tenant with a receipt for the security deposit. However, a landlord who charges an “application fee” or a fee for the evaluation of the tenant’s creditworthiness is required to give a receipt and keep a record of the receipts for at least two years.
Interest Payments: Delaware landlords are not required to pay a tenant interest on their security deposit.
For additional questions about security deposits in Delaware, please refer to the official state legislation, Delaware Code § 5514, for more information.
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