Landlords should familiarize themselves with the statewide regulations that govern security deposits in Montana and understand their responsibilities.
Quick Facts for Montana
- Maximum Amount: No statutory limit set
- Duration for Walk-through Inspection: Within 1 week from tenancy termination
- Duration for Return: Within 10 days after end of lease (for no damages)
- Penalty for Wrongful Withholding: Landlord pays 2x the amount wrongfully withheld/deducted
Purpose of a Security Deposit
Montana describes security deposit as money given by a tenant to a landlord to secure the payment of rent under a leasehold agreement, or to secure payment for damage and cleaning. (MCA 70-25-101(4)).
A security deposit refers to any money that is used to secure a tenant’s adherence to a rental agreement or any part of the rental agreement. A security deposit ensures that a landlord is compensated for losses caused by a tenant 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.
Montana’s security deposit law applies to all rental property, including mobile homes, but excludes public housing authorities’ property (MCA 70-25-102).
Allowable Security Deposit Charge in Montana
Montana doesn’t have any statutes that establish how much a landlord can charge for a security deposit.
Security Deposit Rules & Regulations for Landlords in Montana
- Allowable Deductions from Security Deposit: A Montana landlord is only allowed to make certain deductions from a tenant’s security deposit. These include (MCA 70-25-201(1)):
- Damage caused by the tenant
- Unpaid rent
- Late charges
- Penalties due under the lease agreement
- Charge for the landlord’s labor
- Any other money owed to the landlord
A landlord may not deduct cleaning charges until written notice has been given to the tenant. The notice must include the cleaning that was not performed by the tenant, and the additional and type or types of cleaning that need to be done by the tenant. After the notice has been delivered, the tenant has 24 hours to complete the required cleaning. If the tenant fails to notify the landlord of his/her intention to vacate, the landlord is not required to give notice and the landlord is allowed to deduct the cleaning charges for the security deposit (MCA 70-25-201(3)).
- 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. A Montana tenant may not use the security deposit as 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 any financial loss from a breach of the contract is recovered by the landlord.
- Rental Unit Change Ownership: In Montana, if the rental unit changes ownership, the landlord must do either one of two things:
- transfer the security deposit to the new owner, who becomes responsible for the handling of the security deposit. The landlord must notify the tenant in writing of the transfer.
- return all or a portion of the deposit back to the tenant directly.
Returning Security Deposits in Montana
- Itemized List of Deductions:Within 30 days of tenancy termination, a landlord must provide a tenant with a written list of any rent due and any damage and cleaning charges. The remainder of the security deposit, if any, must accompany the list, which must be delivered to the new address provided by the tenant, or if a new address isn’t provided by the tenant, delivered to the tenant’s last-known address (MCA 70-25-202 (1)).
- Walk-Through Inspection: A Montana landlord is required to provide a tenant with a statement of the present condition of the rental unit at the beginning of the lease term and at move-out as well. The written statement of the present condition of the rental unit should contain at least the following (MCA 70-25-206(2)(a-c)):
- A clear and concise statement of the current condition of the rental unit known to the landlord
- A statement indicating that the unit rental was previously rented, if so
- Landlord’s signature
If a landlord fails to provide a tenant with a separate written statement of the current condition of the rental unit and a list of damage and cleaning charges upon, that landlord cannot recover any money for damage to the rental unit or for cleaning, unless the landlord can prove by clear and convincing evidence that the damage took place during the course of the tenancy in question and was done by the tenant (MCA 70-25-206(3)(a-c)).
At the request of either the landlord or the tenant, the rental unit may be inspected within 1 week before the termination of the tenancy (MCA 70-25-201 (2)).
- Timeframe for Returns (No Damage): If after the walk-through inspection there are no damages to the rental unit, no cleaning required, and no rent unpaid and no unpaid utilities by the tenant, the landlord must return the security deposit within 10 days. It must be delivered by mailing it to the new address provided by the tenant or the tenant’s last-known address. (MCA 70-25-202 (2) (3)). If the landlord mails the security deposit to the last-known address of a tenant and the tenant does not receive it because it’s not the tenant’s current address, the landlord remains liable to the tenant for the amount due the tenant.
- Wrongful Withholding Of Security Deposit: A landlord who wrongfully withholds a residential property security deposit or any portion of the deposit will have to pay a tenant twice the amount that is wrongfully withheld or deducted. Reasonable attorney fees may be awarded.
“Normal Wear and Tear” vs. Damage in Montana
- “Normal wear and tear” is defined as deterioration that occurs as a result of use for which the rental unit is intended and without negligence, carelessness, accident, or misuse or abuse of the premises or contents by the tenant or members of his household, or their invitees or guests. 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.
Security Deposits and Tax Filing in Montana
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 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.
The Law on Security Deposits in Montana
Montana security deposit law can be found in Montana Code Annotated §§ 70-25-101 – 70-25-206.
Tips for Montana Landlords on the Right Practices for Security Deposits
- Charge tenants a reasonable amount of security deposit since there are no statutory limit
- Return security deposits within 30 days of tenancy termination, with a list of deductions
- Return security deposit in 10 days if there are no damages
- Withhold security deposits for unpaid rent, damages, utilities and any other costs related to a breach of lease agreement
- Expect to pay twice the amount of the deposit for wrongful withholding
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Both landlords and tenants should know how the security deposit law applies to them. Landlords are responsible for handling a tenant’s security deposit. Tenants should learn about the security deposit law that govern Montana and know how to protect themselves from abuse. It’s important to stay up-to-date on the security deposit laws of the state to know when amendments are made.
Make sure to refer to the Montana Code Annotated §§ 70-25-101 – 70-25-206 for more on security deposits. Landlords should educate themselves on this topic to protect their rental property and avoid any legal trouble.
Other Resources for Montana Landlords & Tenants
- Montana Eviction Process
- Montana Squatter’s Rights
- Montana Residential Lease Agreement Template