Maine landlords have a duty to remain in compliance with the security deposit laws that govern the state. Both Maine landlords and tenants can protect their interests by becoming familiar with the state’s security deposit law.
Quick Facts for Maine
- Security Deposit Exemption: Rental structure with 5 or fewer units
- Maximum Amount: In the amount of 2 months’ rent
- Duration for Return: At lease end for full return; for partial refund, 30 days (with itemized list)
- Penalty for Late Returns: Landlord forfeits right to withhold any part of deposit
Purpose of a Security Deposit
Maine defines “security deposit” as any advance or deposit with the primary function of securing that a tenant adheres to the lease or tenancy agreement (Me. Rev. Stat. Ann §6031 (2)). Generally, security deposits serve as a safety net for landlords should they suffer financial losses resulting from damages to the rental property, unpaid rent or other breaches of the lease agreement. A security deposit ensures that a landlord is compensated for financial losses and may also incentivizes tenants to adhere to their lease obligations in order to have their security deposit refunded at the end of the tenancy agreement.
Allowable Security Deposit Charge in Maine
Maine landlords can charge a security deposit in the amount of two month’s rent (Me. Rev. Stat. Ann §6032).
Maine residential landlords can offer a tenant the option of purchasing a surety bond as a substitute for a portion or all of a security deposit, but a tenant cannot require a landlord to consent to the purchase of a surety bond. The amount of a surety bond purchased or in the aggregate with a security deposit should not be more than 2 months’ rent. If the landlord requires that the surety bond exceeds 2 months’ rent, the tenant has a right to take action against the landlord for wrongful assessment of a surety bond. (Me. Rev. Stat. Ann §6039 (3)).
- Notice of rights: The landlord is required to deliver a copy of any agreements or documents signed by the tenant when the surety bond is purchased. The landlord should provide tenants with a written notice of their rights before the purchase of a surety bond (Me. Rev. Stat. Ann §6039 (4)).
- Use of Surety Bond: A surety bond may not be used as payment to a landlord for breach of the rental agreement, except for payment related to (Me. Rev. Stat. Ann §6039 (6)):
- Unpaid rent
- Damage due to breach of the rental agreement
- Damage in excess of normal wear and tear to the rental unit, common areas, major appliances or furnishings owned by the landlord
- Nonpayment of utility charges that the tenant was required to pay directly to the landlord
- The cost of storing and disposing of unclaimed property.
Security Deposit Rules & Regulations in Maine
- Security Deposit Exemption: Maine security deposit law doesn’t apply to tenancy for a rental structure of five or fewer rental units owned by a landlord (Me. Rev. Stat. Ann §6037 (2)).
- Storing Security Deposit: During the period of a tenancy, a security deposit should not be treated as an asset, and the landlord shouldn’t commingle the deposit with their other assets. All security deposits must be held in an account at a bank or other financial institution and cannot be claimed by the landlord’s creditors or any other entity. If asked by the tenant, the landlord must disclose the name of the institution and the account number where the security deposit is being held. A landlord may hold security deposits from all of the tenants in a single escrow account and to hold security deposits from tenants residing in separate buildings owned by different entities that are substantially controlled or owned the single landlord (Me. Rev. Stat. Ann §6038(1)).
- Allowable Deductions from Security Deposit : In Maine, landlords are allowed to make deductions from a tenant’s security deposit to cover:
- All unpaid rent
- Damage due to breach of the rental agreement
- Damage in excess of normal wear and tear to the rental property, common areas, major appliances or furnishings owned by the landlord
- Utility charges that the tenant was required to pay directly to the landlord
- The cost of storing and disposing of unclaimed property
A security deposit cannot be withheld, all or in part, to cover normal wear and tear to the rental unit.
- Applying Security Deposit as Last Month’s Rent: A security deposit is not intended to be used to cover a tenant’s last month’s rent, but a rental agreement could provide for such an application. If it’s not explicitly stated in the rental agreement, it cannot be used for paying last month’s rent.
- How to Get Full Refund: At the end of the tenancy, a full security deposit can be returned to the tenant if there is no damage to the rental property, rent is paid in full, all charges in the rental agreement are covered and there are no other issues for which the tenant is held liable.
- Rental Unit Change Ownership: A rental unit can change ownership through sale, assignment, death or appointment. The person who holds the security deposit while the tenancy period still exists is required upon transfer of ownership of the rental unit to do the following (Me. Rev. Stat. Ann §6035 (1)):
- Provide to the new owner with an accounting of the amount of each security deposit paid by each tenant and held by the person holding the security deposits
- Transfer the security deposit or any remainder after deductions for damages to the new owner
- Provide to the tenant by mail:
- Notice of that transfer
- Notice of the transferee’s name and address
- A copy of the accounting of the amount of the security deposit transferred
- Return the security deposit or any remainder after deductions are made
If the landlord’s ownership in the rental property is terminated by sale, the accounting and transfer of the security deposits must occur at the real estate closing.
Returning Security Deposits in Maine
- Time Frame: A Maine landlord is required to return a tenant’ full security deposit at the end of the tenancy period, but if the landlord has a reason to retain all or a portion of the security deposit, he/she is required to provide the tenant with a written statement itemizing the reasons for the withholding.
- The landlord must provide the statement in 30 days if a written rental agreement was established
- In the event of a tenancy-at-will, where tenancy exists without a contract or lease, the statement should be provided within 21 days after the termination of the tenancy or the surrender and acceptance of the premises, whichever occurs later.
- Penalty for Late Return: The written itemized statement and a full payment of the remainder of the security deposit must be given to the tenant. If a landlord fails to provide a written statement or to return the security deposit within the time specified, the landlord forfeits his/her right to withhold any portion of the security deposit. (Me. Rev. Stat. Ann §6033 (3)).
- Tenant Action for Wrongful Withholding: If a landlord fails to return the security deposit and provide the itemized statement within the required time period, the tenant has the right to give notice to the landlord of his/her intention to bring a legal action, which should be done 7 days prior to taking action. If the landlord fails to return the entire security deposit within the 7-day period, the landlord wrongfully retains the security deposit (Me. Rev. Stat. Ann §6034 (1)).
- Penalty for Wrongful Withholding: A landlord who wrongfully withholds a tenant’s security deposit will have to pay twice the amount of the original security deposit received from the tenant, plus reasonable attorney’s fees and court costs if applicable (Me. Rev. Stat. Ann §6034 (2)).
- Refunding Surety Bond: A landlord is required to refund to a tenant any premium or other charge paid by the tenant that is linked to a surety bond if (Me. Rev. Stat. Ann §6039(2)):
- After the tenant purchases a surety bond, the landlord refuses to accept the surety bond, or;
- The tenant does not enter into a rental agreement with the landlord
“Normal Wear and Tear” vs. Damage in Maine
- “Normal wear and tear” is defined as the deterioration that occurs, based upon the use for which the rental unit is intended, without negligence, carelessness, accident or abuse of the premises or equipment or chattels by the tenant or members of the tenant’s household or their invitees or guests. It may 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.
Security Deposits and Tax Filing in Maine
A security deposit can either be held to cover losses suffered by the landlord or refunded to the tenant, all or in part. What happens to the security deposits when the lease is terminated depends on whether it is refunded or it is withheld by the landlord.
- 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.
The Law on Security Deposits in Maine
Me. Rev. Stat. Ann. tit. 14, §6031 to §6039 details the state’s security deposit statues.
Tips for Maine Landlords on the Right Practices for Security Deposits
- Charge a security deposit in the amount of two month’s rent
- You can allow a tenant to post a surety bond as a substitute for all or a portion of a security deposit
- Return the full deposit at the end of the tenancy or provide an itemized statement of deductions to the tenant within 30 days
- If there is no tenancy agreement, provide an itemized statement of deductions to the tenant within 21 days of tenancy termination
- Withhold security deposits for unpaid rent, the costs of storing and disposing of unclaimed property, nonpayment of utility charges, and any other cost that the tenant is legally responsible
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Security deposits are a vital part of the leasing process for both landlords and tenants alike. Landlords should know the Maine’s security deposit law and specifically how it applies to them. Tenants can benefit from understanding their rent when they enter a lease agreement. It’s important to also stay up-to-date on the security deposit statute, since they can be modified over time.
Make sure to refer to the Maine Revised Statutes Ann. tit. 14, §§ 6031-6039 for more on security deposits. Landlords should educate themselves on this topic to protect their rental property and avoid any legal trouble.