- Standard Limit / Maximum Amount: 1 month’s rent (read more)
- What Can Be Deducted: Rent owed, excessive damage & expenses due to early termination (read more)
- Time Limit for Return: Within 20 days from end of lease (read more)
- Penalty if Not Returned on Time: Double the amount withheld (read more)
- Tenant’s Deadline to Claim Funds: 1 year after end of lease (read more)
Purpose. Security deposits are like safety nets. They ensure compensation for any loss that the landlord might incur because of the tenant’s acts. It covers for incidents like damage to the property, termination of the lease without notice or non-payment of rent.
Legal Basics. According to Delaware security deposit law, a landlord can charge up to 1 month’s rent as security deposit. At the end of the lease, the landlord has 20 days to return it (or pay double the original deposit if after), and may deduct unpaid rent, damages in excess of normal wear and tear, and expenses incurred related to early termination.
Maximum Security Deposit Charge in Delaware
Delaware landlords can charge a maximum amount of 1 month’s rent as security deposit for a lease that has a term of more than 1 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:
- When the term of the lease is less than 1 year
- When the lease does not have a definite term (e.g. month-to-month lease)
- When 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 1 and 2 above, the landlord can charge more than the equivalent of 1 month’s rent as security deposit. However, the landlord is required to return the amount of security deposit in excess of 1 month’s rent once the actual duration lease extends beyond 1 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 1 to 5 in the list above, the other rules to be discussed below do.
Additional Pet Deposit
If the tenant has a pet, the landlord may charge additional pet deposit unless the pet is a certified support animal for a disabled person who will reside in the rental unit under the lease. The maximum amount of pet deposit the landlord can charge is 1 month’s rent regardless of the length of the lease.
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 requests for this information, the landlord will forfeit the deposit to the tenant. When 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 as required.
Allowable Deductions on Security Deposits in Delaware
At the end of the tenancy, the landlord can use the security deposit to cover the following:
- 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;
- To pay for unpaid rent including cases of arrears, early termination or abandonment by the tenant
- To 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 3 above, the landlord is only entitled to keep a maximum amount of 1 months’ rent from the deposit if the early termination by the tenant was done by giving the required 30-day notice in the following instances:
- Change in the location of employment that’s more than 30 miles from the premises
- Serious illness of the tenant or his family residing in the premises that requires moving
- The tenant’s acceptance in a senior citizen’s housing unit
- The tenant’s admission to a subsidized rental unit
- The tenant is a victim of domestic abuse, sexual offenses, stalking or is seeking protection from the same
- In the event of the death of the tenant
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 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 his rights to make deductions. This is because in such an event, the landlord will be considered to have agreed that there will be no deductions.
Failure of the Tenant to Provide a Forwarding Address: If the tenant does not provide a forwarding address to which the landlord can mail the itemized list and the remainder of the security deposit the penalty for not returning the deposit within the allowed timeframe will not apply. However, the landlord is still required to return the security deposit, or what’s left of it, if the tenant claims if within 1 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 or object to any charge. 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 1 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 2019 but was only forfeited in 2020, then the landlord should only include it as income in 2020.
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 3 simple rules the IRS has suggested to follow:
- 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.
- If 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 that must be must to either the landlord or the tenant must be sent to the respective addresses the two provided in the lease. If the tenant has provided a forwarding address, then mail that pertains to the tenant must be sent there.
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 it. If the increase in security deposit will be more than 10% of the monthly rent, payment of the same 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 of the same must be spread out over 4 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 for the same and keep a record of such receipts for at least 2 years.
Interest Payments: Delaware landlords are not required to pay a tenant interest on their security deposit.
Frequently Asked Questions
How much can a landlord charge for a security deposit in Delaware?
The maximum security deposit a landlord can charge in Delaware is 1 month’s rent. If the tenant has a pet, the landlord may charge an additional pet deposit of up to 1 month’s rent on top of the security deposit.
Can you use the security deposit as last month’s rent in Delaware?
In Delaware, a tenant is not usually allowed to use the security deposit as last month’s rent. However, if there is an agreement between the landlord and the tenant to use the security deposit for last month’s rent, then the tenant can do so.
What can a landlord deduct from a security deposit in Delaware?
A landlord in Delaware can legally deduct the following from the security deposit: unpaid rent, cost of repairs for damage to the unit and expenses incurred by the landlord due to the early termination.
However, repairs and restorations are not chargeable against the security deposit if they are for that damage was caused by normal wear and tear, or existed before the tenant moved in.
Can a landlord charge a cleaning fee in Delaware?
In Delaware, a landlord isn’t allowed to charge a cleaning fee to cover normal or ordinary cleaning. The landlord is only allowed to deduct expenses incurred for damage which exceeds normal wear and tear, or which cannot be corrected by painting and ordinary cleaning.
What is considered normal wear and tear in Delaware?
Normal wear and tear in Delaware is defined as the deterioration in the condition of a property or premises that is caused by the ordinary and reasonable use of the property or premises.
How long does a landlord have to return the security deposit in Delaware?
In Delaware, a landlord has 20 days from the move out date to return the security deposit as well as a written statement of deductions if there are any.
Upon receipt of the written statement of deductions, the tenant has 10 days to dispute the charges. Otherwise, the tenant will be considered as having agreed to them.
What happens if a landlord does not return the security deposit in Delaware?
If a landlord in Delaware does not return the security deposit within 20 days from the move out date, the landlord loses the right to make any deductions and may be liable for a penalty of double the amount withheld.
The tenant has 1 year from the end of the lease to claim the security deposit otherwise the same will be forfeited in favor of the landlord.
Are security deposits taxable in Delaware?
Security deposits in Delaware aren’t taxable until they become the landlord’s property. This happens when the security deposit is applied to rent, forfeited, or applied to charges allowed under the lease.
However, when they are used to cover expenses incurred by the landlord due to the tenant’s fault, like the cost of repairs or unpaid utilities, they are not always taxable. The IRS advises to only report them as income if the landlord also reports the costs they covered as expenses. Otherwise, there is no need to report them as income, in which case they will not be taxed.
For additional questions about security deposits in Delaware, please refer to the official state legislation, Delaware Code § 5514, for more information.