A security deposit is a key element when entering a lease agreement, and every Tennessee landlord has a right to make it a requirement of tenants. The landlord-tenant relationship requires, in part, that a landlord and tenant understand how the state’s security deposit law applies to them and their dealings.
Quick Facts for Tennessee
- Maximum Amount: No limit
- Duration for Return: 60 days after end of lease
- Other Return Requirements: Itemized list of any damages due with deposit
- Penalty for Late Returns: Landlord forfeits right to deposit & must pay any damages
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.
Security Deposit Maximum in Tennessee
The state of Tennessee has no established maximum amount that a landlord can charge a tenant for a security deposit.
Storing Security Deposit
A landlord is required to place all security deposits in an account used only for that purpose, in any bank or other lending institution regulated by the State of Tennessee or any agency of the U.S. government (TN Code § 66-28-301(a)).
- If a landlord fails to store a tenant’s deposit in an account as required, the landlord forfeits the right to keep any portion of the tenant’s security deposit.
Returning the Security Deposit
Tennessee landlords must send a written notification by certified mail to the last known address or reasonably determinable address of the tenant, which includes an itemized list of damages and the amount of deposit due to the tenant within 60 days. If the landlord does not receive a response from the tenant within 60 days of sending the notification, the landlord can remove the deposit from the account it’s held in. The tenant forfeits the right to claim the security deposit (TN Code § 66-28-301(f)).
Receipt of the Security Deposit
Landlords are required to notify tenants at the time the lease is signed and the security deposit submitted, of the location of the account in which the deposit is held, but not the account number (TN Code § 66-28-301(h)).
Landlords can keep all, or a portion of a tenant’s security deposit to cover the following deductions:
- Unpaid Rent
- Damage in excess of normal wear and tear
- All other contractual damages
Failure to Comply with Return Requirements
If a landlord fails to comply with the security deposit return requirements, the tenant may recover damage, plus the security deposit.
Landlords are required to perform a walk-through inspection to look for any damage to the property and must create a written list of any damages. It is the tenant’s right to be present at this inspection (TN Code § 66-28-301(b)).
There are certain rules that applies to inspection (TN Code § 66-28-301(1) (A)(B)):
- The landlord must inform the tenant by written notification of their right to be present at the walk-through inspection. The written notice must be provided when the landlord gives the tenant notice to vacate the unit or within five days of receiving a tenant’s written notice to vacate the unit.
- The inspection must be performed either on the day the tenant completely vacates the premises, or within 4 calendar days of the tenant vacating the rental unit.
- A tenant may request for the inspection to take place during normal working hours, but the landlord will ultimately determine the actual inspection time.
- If a tenant fails to show up for the inspection at the set time, the tenant loses the right to contest any damages the landlord lists in the inspection report, and such condition must be explicitly stated in the rental agreement.
- In the event of a mutual inspection, both landlord and tenant must go through the rental unit and compile a list of all damages and the approximated repair costs. Both are required to sign the inspection list validating the accuracy of the listing. If the tenant refuses to sign the list, the tenant must specify, in writing, the items on the list to which he/she disagrees.
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 the 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.
Property Change Ownership
If a rental property changes ownership, a Tennessee landlord must transfer all security deposits to the new owner. The landlord must further notify the tenants in writing that their security deposit is now in the possession of the new landlord (TN Code § 66-28-305).
Tips for Tennessee Landlords on the Right Practices for Security Deposits
- Charge tenants a security deposit amount that is appropriate in the absence of a statutory limit
- Provide tenants with an itemized list of deductions and the cost of each
- Return security deposits within 60 days of tenancy termination
- Withhold security deposits for unpaid rent, damage and all other contractual damages
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Landlords and tenants should know how Tennessee’s security deposit law works. Landlords should remain in compliance with the statutes that govern security deposits. Tenants have a duty to adhere to their lease obligations throughout the duration of their tenancy. Tennessee Security deposit statutes can be found in Tennessee Code Annotated § 66-28-301 and § 66-28-305.