Vermont Security Deposit Law

Vermont landlords may require a security deposit from tenants when entering a lease agreement. It provides landlords with a bit of a cushion when they experience financial losses as a result of tenants breach of contract. It’s crucial for landlords to adhere to the security deposit law that governs the landlord-tenant relationship.

Quick Facts for Vermont

  • Maximum Amount: No limit
  • Duration for Return: 14 days after end of lease
  • Penalty for Late Returns: Refund amount will be doubled
  • Deadline to Claim Funds: 60 days

The Purpose of a Security Deposit

The purpose of a security deposit is to secure the performance of a tenant’s obligations to pay rent and to maintain a dwelling unit (9 V.S.A. § 4461(a)).

Security Deposit Maximum in Vermont

The state of Vermont has no established maximum amount that a landlord can charge a tenant for a security deposit. However, town or municipality may have an ordinance that governs security deposits on dwellings and authorize the payment of interest on a security deposit (9 V.S.A. § 4461(f)). Landlords and tenants should check their local ordinances to determine the security deposit charge limit, if any.

Returning the Security Deposit

A landlord must return a tenant’s security deposit along with a written statement itemizing any deductions within 14 days from the date on which the landlord discovers that the tenant vacated or abandoned the rental unit, or the date the tenant moved out of the rental unit, if the landlord received notice from the tenant of that date. In the instance of seasonal occupancy and a rental unit not intended as a primary residence, the security deposit and written statement shall be returned within 60 days (9 V.S.A. § 4461(c)).

  • Delivery: The landlord must hand-deliver or mail the statement and any payment required to the last known address of the tenant (9 V.S.A. § 4461(d)).

Allowable Deductions

Vermont landlords may deduct from a tenant’s security deposit the following (9 V.S.A. § 4461(b)):

  • Non-payment of rent
  • The cost of damage to property beyond normal wear and tear 
  • Nonpayment of utility or other charges the tenant was required to pay directly to the landlord or to a utility company
  • Expenses required to remove articles abandoned by the tenant from the rental unit

Failure to Return Security Deposit

If a landlord fails to return a tenant’s security deposit along with a statement within 14 days, the landlord forfeits the right to withhold any portion of the security deposit. If the failure is willful, the landlord will be liable for twice the amount wrongfully withheld, plus reasonable attorney’s fees and costs (9 V.S.A. § 4461(e)).

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. 

Property Change Ownership

When the rental unit changes ownership, the security deposit must be transferred to the new landlord. The new landlord is required to give the tenant actual notice of the new landlord’s name and address with a statement that informs the tenant that the security deposit has been transferred to the new landlord (9 V.S.A. § 4461(f)).

Vermont Security Deposit Law

Vermont security deposit law can be found in 9 Vermont Statutes Annotated § 4461

Tips for Vermont Landlords on the Right Practices for Security Deposits

  • Charge tenants a security deposit amount that is appropriate in the absence of a statutory limit
  • Return a tenant’s security deposit within 14 days from the date you discover that the tenant vacated or abandoned the rental unit, or the date the tenant moved out 
  • Withhold security deposits for non-payment of rent, the cost of damage to property beyond normal wear and tear, nonpayment of utility or expenses required to remove articles from the rental unit abandoned by the tenant
  • Seek damages in legal proceedings when a tenant acts in bad faith and breach the rental agreement

It’s essential that both landlords and tenants understand the ins and outs of the state’s security deposit law. Landlords have a responsibility to stay in compliance with Vermont’s security deposit statutes. Tenants should stick to their lease obligations during their tenancy.