South Dakota landlords have the right to make a security deposit a requirement when entering a lease agreement. It provides landlords with a level of protection against financial losses as a result of tenants non-compliance. Landlords and tenants alike should have a knowledge of South Dakota ’s security deposit law that governs the landlord-tenant relationship.
Quick Facts for South Dakota
- Maximum Amount: 1 month’s rent
- Duration for Return of Deposit: 2 weeks after end of lease
- Other Return Requirements: Itemized list of any damages within 45 days
- Penalty for Late Returns: Landlord will pay punitive damages of no more than $200 if held in bad faith & no itemized list is given
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 incentivizes 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 South Dakota
The maximum security deposit a landlord can charge a tenant for a residential dwelling is no more than one month’s rent, except that a larger deposit may be agreed upon between the landlord and the tenant, where special conditions pose a danger to the maintenance of the rental property (SDCL §§ 43.32-6.1).
Returning the Security Deposit
South Dakota landlords must adhere to specific procedures when returning a tenant’s security deposit (SDCL §§ 43-32-24):
- Time-frame For Returning Security Deposit: Within two weeks after the termination of the tenancy and receipt of the tenant’s mailing address or delivery instructions, South Dakota landlords must return the security deposit to the tenant, or provide the tenant with a written statement showing the specific reason for the withholding of the deposit or any portion of it.
- Time-frame For Providing Itemized Statement: Within forty-five days after the termination of the tenancy, upon request of the tenant, the landlord should provide the tenant with an itemized accounting of any deposit withheld.
South Dakota landlords may deduct from a tenant’s security deposit the following:
- Unpaid Rent
- Cost to restore the premises to the conditions at the start of the tenancy
- Other funds due to the landlord related to a breach of the rental agreement
Failure to Return Security Deposit
If a landlord fails to comply with the security deposit return requirements, he/she will forfeit all rights to withhold any portion of the tenant’s deposit. If the security deposit is withheld in bad faith and the landlord fails to provide the written statement and itemized accounting required, he/she will have to pay punitive damages of no more than $200 (SDCL §§ 43-32-24).
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 South Dakota Landlords on the Right Practices for Security Deposits
- Charge tenants a security deposit amount that is no more than one month’s rent, except if there is an agreement in the lease where special conditions pose a danger to maintenance of the premises
- Return a tenant’s security deposits within two weeks after lease termination and 45 days to provide an itemized list of damages at the tenant’s request
- Withhold security deposits for unpaid rent, the cost to restore the premises to pre-rental conditions at the start and other funds due to the landlord related to a breach of the rental agreement
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Knowing South Dakota’s security deposit law is essential for both landlords and tenants. Landlords should remain in compliance with the state’s security deposit law and work to protect their interests as well. Tenants have an obligation to adhere to their lease agreement during the course of their tenancy. South Dakota security deposit law can be found in S.D. Codified Laws Ann. §§ 43-32-6.1 and 43-32-24.