Vermont Security Deposit Law

Last Updated: October 1, 2021 by Elizabeth Souza

QUICK FACTS
  • Local Ordinance Restrictions: Towns or municipalities may adopt additional ordinances that are supplemental to the state security deposit laws. (read more)
  • Standard Limit / Maximum Amount: No limit (read more)
  • What Can Be Deducted: Unpaid rent, unpaid utilities, cost of damage to the unit (not wear and tear), cleanup of abandoned articles, and any other reason mentioned in the lease agreement. (read more)
  • Time Limit for Return: 14 days after the end of the lease, 60 days for seasonal occupancy. (read more)
  • Penalty if Not Returned on Time: Forfeiture of right to retain any portion of the deposit, plus double the withheld sum and legal fees if the withholding is willful and negligent. (read more)

Purpose. 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. It may only be applied to damages not considered standard wear and tear.

Questions? To chat with a Vermont landlord tenant attorney, Click here

Legal Basics. Vermont landlords can charge any amount as a security deposit as long as it is listed in the lease agreement. It must be returned within 14 days of lease termination, otherwise the landlord will forfeit the right to retain any funds and be liable for double the withheld sum in damages. Landlords may not deduct for standard wear and tear.

Local Ordinance Restrictions in Vermont

In addition to the minimum protections of the provisions provided in Vermont security deposit law, local municipalities may adopt their own rules and regulations regarding security deposits.

These changes may not include limitations on how a security deposit is made but may affect details like interest rates or the maximum security deposit charge. (9 V.S.A. § 4461(g))

Maximum Security Deposit Charge in Vermont

In Vermont, there are no limits on how much a landlord may charge as a security deposit. Landlords generally charge between one and two months’ rent as a security deposit.

Additional Pet Deposits. Under Vermont’s law, the landlord may ask for an additional pet deposit; however, people with disabilities who use service animals are entitled to full and equal access to housing. Thus, the tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.

The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.

Allowable Deductions on Security Deposits in Vermont

The landlord may use the security deposit to make deductions only after the tenant has vacated the premises.

The security deposit should be used to cover:

  1. Unpaid rent;
  2. Costs of damage caused by the tenant’s failure to comply with obligations as a tenant but not those considered to be standard wear and tear;
  3. Unpaid utilities owed to the service provider or landlord directly; and
  4. Costs of removing abandoned property from the unit.

Can the deposit be used by the tenant as last month’s rent?
The deposit may be used as the last month’s rent only if both parties agree in the lease agreement. Otherwise, the security deposit should be handled separately from any rent balance left outstanding.

“Normal Wear and Tear” vs. Damage in Vermont

  • 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.

Check out our article on wear and tear vs. damage to get a better idea of the difference.

Tenant’s Obligations

The landlord can only charge the cost of repairs if the damage was caused by the failure of the tenant to comply with their obligations as a tenant. This obligation is to maintain the property and return it in the same condition it was received.

The tenant must comply with these obligations:

  1. Comply with all applicable provisions of housing, building and health codes;
  2. Conduct themselves and their invited guests in a manner that will not disturb the tenant’s peaceful enjoyment of the premises;
  3. The tenant and their invited guests shall not deliberately or negligently destroy, damage or remove any part of the premises, its fixtures and furnishings;
  4. A tenant may terminate a tenancy by notice given to the landlord at least one rental payment period prior to the termination date specified in the notice.

If the damage to the premises was caused by the tenant’s failure to comply with any of the above, then the landlord may take the cost of repairing it from the security deposit.

Returning Security Deposits in Vermont

Time Frame: A Vermont landlord has 14 days to return any unused portion of the security deposit along with a written itemized list of damages deducted. This period begins on the date of termination presented in the lease agreement or upon discovery of the abandoned property. This time frame expands to 60 days for seasonal occupancy (which is not intended for us as a primary residence).

To comply with return requirements, the landlord must hand-deliver or mail the security deposit and statement to the last-known address of the tenant.

Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 14-day limit, the tenant stands to recover up to the full security deposit, plus double the withheld sum and any legal fees associated with recovering the deposit in court if the withholding is considered willful and negligent. Tenants may sue landlords in Vermont’s Small Claims Court up to a maximum amount of $5,000.

Questions? To chat with a Vermont landlord tenant attorney, Click here

Security Deposits and Tax Filing in Vermont

Whether a security deposit will be treated as taxable or not depends on if the deposit is used or returned.

Taxable Income: Security deposits are not automatically considered income upon collection at the beginning of tenancy. They only become taxable income when the landlord no longer has any obligation to refund them (such as for settling damages incurred). At this point they may also qualify as a write-off for tax purposes as well.

Reporting Security Deposit as Income: Whether or not security deposit should be reported as income and when to do so will depend on what it is being applied to or used as. Below are three simple rules the IRS has suggested to follow:

  1. If the deposit is forfeited due to a breach of the lease or applied to unpaid rent, then the amount kept should be declared as income in the year it was forfeited or applied.
  2. If the security deposit is used to cover expenses that are chargeable to it, then the landlord should only include the part of the deposit used as income if the landlord includes the cost of repairs as expenses. If the landlord doesn’t include them as expenses as a matter of practice, then there’s no need to include the part of the deposit kept to cover them as income.
  3. If there is an agreement between the parties to use the deposit or part of it as the final month’s rent, then the landlord should include it as income when the same is received.

Additional Rules & Regulations in Vermont

Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in Vermont.

Security Deposit Holdings in Vermont: Vermont laws do not require landlords to hold security deposits separate from other funds.

Security Deposit Interest in Vermont: Vermont laws do not require landlords to provide interest on held security deposits.

New Property Owner’s Responsibility: If the original landlord decides to sell or transfer ownership of the rental property, 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)).

For additional questions about security deposits in Vermont, please refer to the official state legislation, Vermont Landlord-Tenant Statutes