Landlords should familiarize themselves with the statewide regulations that govern security deposits in Pennsylvania and understand their responsibilities.
Quick Facts for Pennsylvania
- Maximum Amount: 2 month’s rent for yearly lease; 1 month’s rent for second year or later; cannot increase from this amount after 5 years
- Duration for Return: 30 days after end of lease
- Other Return Requirements: Itemized list of any damages
- Penalty for Late Returns: Landlord will return double the refund, plus any interest due
A security deposit is meant to protect a landlord in that instance a tenant causes the landlord a financial loss during the course of the tenancy. Both landlords and tenants should know Pennsylvania ’s security deposit law that governs the landlord-tenant relationship. The state’s security deposit law helps landlords and tenants alike to protect their interests.
The Purpose of a Security Deposit
Security deposits serve as a safety net for landlords should they suffer financial losses caused by the tenant doing damage to the rental property, or a breach of the lease agreement, or unpaid rent. It ensures that a landlord is compensated for losses and may also incentivize tenants to adhere to their lease obligations in order to secure their security deposit at the end of the tenancy agreement.
Security Deposit Maximum in Pennsylvania
Pennsylvania’s security deposit law sets a limit on the amount a landlord can charge a tenant as a security deposit. This limit is determined by the length of tenancy (P.S. § 250.511a(a) (b) (d)):
- First Year of Lease: A landlord can charge a maximum of two months’ rent when an initial yearly lease is established between landlord and tenant.
- Second Year of Lease: During the second and subsequent years of the lease, or a renewal of the original lease, the landlord can only require one month’s rent as a security deposit.
- Fifth Year of Lease: If a tenant has lived in the rental unit for five years or more, any increase in rent cannot require an accompanied increase in any security deposit.
Security Deposit Storage
Security deposits over one hundred dollars ($100) should be deposited in an escrow account of an institution regulated by the Federal Reserve Board, the Federal Home Loan Bank Board, Comptroller of the Currency, or the Pennsylvania Department of Banking (P.S. § 250.511b (a)).
Notification of Receipt
The landlord should notify tenants in writing each of the name and address of the banking institution in which the deposits are held, and the amount deposited (P.S. § 250.511b (a)).
Security Deposit Interest
If a tenant’s security deposit is placed in an interest-bearing escrow savings account, then the landlord is entitled to administrative expenses, equal to one per cent per annum. The remaining portion of the security deposit belongs to the landlord (P.S. § 250.511b (b)).
The landlord can post a guarantee bond for the amount of the security deposit required, which must be issued by a bonding company that is authorized to do business in the state of Pennsylvania (P.S. § 250.511c).
Returning the Security Deposit
Pennsylvania landlords must follow certain procedures when returning a tenant’s security deposit (P.S § 250.512 (a)):
- Itemized Statement: When the tenancy is terminated, the landlord must return the tenant’s security deposit and interest due, minus any deductions for damages. The tenant should be presented with a written list of any damages that itemizes the deductions and the charge for each.
- Time-frame: The written notice, along with the remainder of the security deposit should be delivered to the tenant within thirty days after termination of the tenanc.
Pennsylvania landlords may deduct from a tenant’s security deposit the following:
- Unpaid Rent
- Damage in excess of normal wear and tear
- Other Breaches of the Lease Agreement
Failure to Comply With Return Requirements
If a landlord fails to provide a written list of damages within thirty days, he/she forfeits all right to withhold any portion of the security deposit or interest, or to bring suit against the tenant for damages (P.S § 250.512 (b)).
If a landlord fails to pay the tenant the remaining deposit and interest due after making deductions within those thirty days, the landlord will have to pay the tenant double the amount of the security deposit, plus any interest due (P.S § 250.512 (c)).
Failure to Provide Forwarding Address
If the tenant fails to provide the landlord with his/her new address in writing once the tenancy is terminated, the landlord is no longer liable for returning the security deposit (P.S § 250.512 (e)).
Using the Deposit for Last Month’s Rent
A security deposit is not intended to be used to cover a tenant’s last month’s rent, but the provision can be established in the rental agreement.
How to Get a Full Refund of Security Deposit
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.
Security Deposits and Tax Filing
What happens to the deposit at the end of the tenancy determines how it is treated for tax purposes.
- Accounting for Security Deposits: Security deposits are treated as either assets or liabilities when filing taxes. Tenants shouldn’t deduct security deposits as expenses and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant.
- Security Deposit Write-off: If a landlord withholds part or all of the security deposit for losses, that amount should be included as income when filing taxes. Forfeited deposits should be declared as income.
“Normal Wear and Tear” vs. Damage
- “Normal wear and tear” is deterioration that occurs as a result of everyday use of the rental unit, and without negligence, carelessness, accident, or misuse or abuse by the tenant.
- “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.
Tips for Pennsylvania Landlords on the Right Practices for Security Deposits
- Charge tenants a security deposit amount that is required based on the length of tenancy.
- Return a tenant’s security deposits within 30 days of tenancy termination
- Withhold security deposits for unpaid rent, damage that is beyond normal wear and tear and other costs related to a breach of the lease agreement
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Knowing Pennsylvania’s security deposit law is something that both landlords and tenants should take an interest in. Landlords should remain in compliance with the state’s security deposit law, while tenants should adhere to their lease obligations. Pennsylvania security deposit law can be found in Pennsylvania Consolidated Statutes Annotated Title 68 § § 250.511a to 250.512.