A security deposit is crucial when landlords and tenants are entering a lease agreement. Both landlords and tenants should know DC’s security deposit law that governs the landlord-tenant relationship. DC’s security deposit law lends specific protections to landlords and tenants alike.
Quick Facts for Distric of Columbia
- Maximum Amount: Cannot exceed 1 month’s rent
- Duration for Return: 45 days after end of lease
- Penalty for Late Returns: Refund deposit amount, plus interest
- Move-Out Inspection: Can be completed within 3 days of end of lease
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 DC
A landlord cannot charge a tenant more than one month’s rent for a security deposit. Furthermore, if a tenant has occupied a unit since July 17, 1985, and no deposit was collected then, a landlord cannot now demand or receive a security deposit from the tenant (DC Code § 42–3502.17(a)).
Storing Security Deposit
A landlord is required to place all monies paid to a landlord by a tenant for security deposits or other payment made as security in an interest-bearing escrow account that is established and held in trust in a federal or state financial institution in the District of Columbia (14 DCMR § 308.3).
- Timeframe:The monies should be placed in the account within 30 days after it’s been received by the landlord (14 DCMR § 308.4). A landlord with more than one residential building can establish 1 escrow account for holding security deposits or other payments collected from tenants of those buildings (14 DCMR § 308.5).
- Terms and Conditions: The landlord/agent should clearly state in the lease or agreement, or on the receipt for the deposit, the terms and conditions under which the security deposit payment was made (14 DCMR § 308.6).
- Public Notice Posting: At the end of each calendar year, the landlord/agent is required to post in the lobby of the building and rental office where the tenants’ security deposits are held and the interest rate for each 6-month period over the past year; at the end of a tenant’s tenancy, the landlord/agent must list the interest rate for each 6-month period during the tenancy (14 DCMR § 308.7).
Security Deposit Receipt
A landlord/agent should provide the tenant with a written receipt for all monies paid for security or other payments unless the payment is made by personal check. The receipt should have the exact amount received, the date received, the purpose of the payment, as well as any amounts still owed that are related to late charges, court costs, or any other charges beyond rent (14 DCMR § 306.1-§ 306.3).
Returning the Security Deposit
DC landlords must follow certain procedures when returning a tenant’s security deposit:
- Time-frame: Within 45 days after the termination of the tenancy, the landlord/agent must do one one of two things (14 DCMR § 309.1):
- Offer payment to a tenant of any security deposit and any similar payment, and any interest due on that deposit or payment, or;
- Notify the tenant in writing of the landlord/agent’s intention to withhold and apply the monies toward the cost of expenses incurred by the tenant under the terms and conditions of the security deposit agreement. This notice should be delivered to the tenant personally or by certified mail at the tenant’s last known address.
- Itemized List: Within 30 days after notification of intent to withhold monies for deductions, the landlord/agent must provide the tenant with a refund of the balance of the deposit or payment, plus interest not used to cover expenses, along with an itemized statement of the repairs and other applicable uses and the cost of each repair or other use (14 DCMR § 309.2).
- Failure to Comply: If a landlord fails to return the tenant’s deposit within the required timeframe and provide notification of deductions, the tenant will be entitled to a full return of the security deposit or other monies, plus interest on any deposit or other payment (14 DCMR § 309.3). In the case of bad faith withholding, the tenant is entitled to three times the amount withheld (14 DCMR § 309.5.(1)).
- Good Faith Failure: If a landlord/agent fails to serve the tenant personally or by certified mail with their refund and/or itemized statement, after a good faith effort, it is not a failure to comply (14 DCMR § 309.4).
A landlord must return the interest earned on an escrow account to the tenant at the end of termination of any tenancy of 12 months or more within 45 days, unless an amount is deducted, then 30 days after notification of deductions. If a landlord/agent fails to pay interest on a security deposit escrow account that is rightfully owed to a tenant as required, he/she will be liable to the tenant, as applicable, for the amount of the interest owed, or in the event of bad faith, for three times that amount. If a landlord/agent willfully fails to pay interest on a security deposit escrow account that is rightfully owed to a tenant as required, he/she will have to pay a civil fine of no more than $ 5000 (14 DCMR § 311.2 (1)).
- If the landlord/agent invests the security deposit in an account with an interest rate that is more than the statement savings rate as required, he/she may apply up to 30% of the excess interest for administrative costs or other purposes (14 DCMR § 311.2 (1)).
A landlord/agent 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
- Other breaches of the lease agreement
A landlord/agent cannot withhold a tenant’s security deposit for the replacement value of apartment items that are damaged due to ordinary wear and tear DC Code § 42–3502.17(c)(1)).
Inspection of Premises
A landlord or agent may inspect the rental unit within 3 days, excluding Saturdays, Sundays, and holidays, before or after the termination of the tenancy (14 DCMR § 310.1). The landlord must conduct the inspection at the time, date and place given to the tenant in a written notification (14 DCMR § 310.2-§ 310.3). The notice must be delivered to the tenant, or at the rental unit, at least 10 days before the date of the intended inspection (14 DCMR § 310.4).
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” means deterioration that results from the intended use of a dwelling unit, including breakage or malfunction due to age or deteriorated condition (DC Code § 42–3502.17(3)).
- “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 DC landlord must either:
- 1. Transfer the tenant’s security deposit to the new owner and notify the tenants in writing of the transfer and of the new owner’s name and address, or;
- 2. Return the deposits to the tenants directly and notify the new owner that the security deposit has been returned to the tenants.
Tips for D.C Landlords on the Right Practices for Security Deposits
- Charge a tenant no more than one month’s rent for a rental unit occupied on or after February 20, 1976.
- Provide tenants with an itemized list of deductions and the cost of each
- Return security deposits within 45 days of tenancy termination
- Withhold security deposits for unpaid rent, damage 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
Both landlords and tenants can benefit from knowing and understanding DC’s security deposit law. Landlords are required to remain in compliance with the state’s security deposit law. Tenants have a duty to adhere to their lease obligations, and in so doing, can get a refund of their security deposit at the end of their lease term. DC security deposit statutes can be found in District of Columbia Code § 42–3502.17, 14 DCMR § 308– 311.