When landlords collect security deposits from their tenants, they can use that deposit to cover a variety of expenses. These expenses include things like covering unpaid utilities upon move-out, covering excessive cleaning costs, covering excessive property damage, covering lost rental income, and covering losses in rent payments.
Essentially, a security deposit is meant to protect you against potential tenant actions that may result in any financial losses on your part. As a landlord in Pennsylvania, you have a right to collect a security deposit from your renters. You must abide by the landlord-tenant law surrounding security deposits in Pennsylvania.
The following are the security deposit laws to abide by to be a successful Pennsylvania landlord. Understanding them is key to a landlord's success, so keep reading to learn more.
Security Deposit Limit
There is a limit to how much a landlord can collect from a tenant as a security deposit under Pennsylvania law. The specific amount depends on the length of the lease.
For renters in their first year on the lease, a landlord can charge a maximum security deposit of two times the cost of one month's rent. For residents entering into the second year of their lease or rental agreement, security deposits in Pennsylvania cannot exceed one month’s rent.
If a tenant is in the fifth year or more of their lease, a landlord can’t increase the security deposit even if they are increasing the rent.
Security Deposit Storage
Pennsylvania security deposit law dictates that landlords must store their tenants' security deposits in one of two ways. The first option is to store it in an escrow account.
The account must be in a financial institution that is regulated by either the state’s Department of Banking, the Comptroller of the Currency, the Federal Home Loan Bank Board, or the Federal Reserve Board. The escrow account may either be interest-bearing or not.
The other option is to post a guaranteed bond for the security deposit amount. The bond company issuing the bond must be authorized to operate in Pennsylvania.
The landlord must pay interest to a tenant starting in their third year or 25th month of tenancy. They may subtract a 1% management fee from the accrued interest.
Right to Notice After Receipt
Renters in the state of Pennsylvania have a right to be issued a written notice or receipt of their security deposit if the landlord stores it in an escrow account. In the proof of written notice or receipt, the landlord must provide the tenant with the following account information:
- Name of the bank.
- Address of the bank.
- Amount of security deposit that has been deposited in the account.
Reasons to Withhold a Tenant’s Security Deposit
A landlord may be able to withhold a portion or all of the renter’s security deposit to cover the following situations.
- Unpaid rent. If a tenant hasn't paid their rent and wants to use their security deposit to pay for the last month's rent, you can choose to agree to this or not.
- Expenses that have accrued as a result of the tenant not meeting their obligations.
- Costs of damages exceeding regular wear and tear.
- Fee of repainting the rental unit due to damage beyond wear and tear, including water damage, large or deep scratches, and stains. You must not, however, charge the tenant for minor cracks in the original paint or fading due to sunlight exposure.
- Cost of replacing the carpet. Again, the damage must exceed normal wear and tear. Such damage includes burns, visible stains, or rips. You cannot charge the tenant for damage resulting from wear and tear like gentle wear to the carpet, indents from furniture, or fading from sunlight exposure.
Just like in most other states, there is no legal limit to how much landlords can charge for damages. The only requirement is that the charges must be reasonable.
If the costs of fixing the damage exceed the security deposit amount, you may be able to sue for the extra costs. However, if a landlord fails to return the remainder security deposit within 30 days of the lease ending, they cannot sue for any additional damages the tenant may have caused.
Normal Wear and Tear vs Damage
This is often a point of conflict between landlords and renters. Understanding what constitutes what kind of damage can help avoid potential conflicts or misunderstandings when it comes to returning a security deposit.
Normal wear and tear refers to the normal deterioration a property undergoes with time. Examples of this kind of damage include lightly dirtied grout, stained bath fixtures, loose door handles, faded paint, and gently worn carpets.
Damage, on the other hand, refers to damage that occurs due to carelessness or negligence on the tenant’s part. Common examples of damage include missing fixtures, holes in the wall, missing tiles, and burned carpets.
In some states, residents have a right to a walk-through inspection before the tenant finally moves out. The inspection helps highlight any damage exceeding wear and tear the tenant has caused.
And if any are found, the tenant gets an opportunity to remedy the issues before they can move out. If they don’t, the landlord may then make appropriate deductions to the security deposit. According to Pennsylvania law, a walk-through inspection isn't required, but it's never a bad idea to do one at the end of a lease.
Returning a Tenant’s Security Deposit
If you’ve made no deductions to the tenant’s deposit, you must return it within 30 days of the tenant moving out. Make sure to ask for a forwarding address before the tenant vacates the property.
If you’ve made deductions, you must return what remains of the deposit to the tenant within 30 days. You must also provide the tenant with an itemized list of deductions plus their approximate or actual repair costs.
Failure to return the deposit within the specified time may result in you being liable for two times the full deposit amount. Also, failure to provide an itemized list when making deductions may result in you losing your right to keep any deductions.
If the tenant fails to provide a forwarding address, you’ll lose any responsibility to refund the deposit to the tenant.
Pennsylvania Security Deposit Laws: Bottom Line
Charging a security deposit is key. Security deposits act as a financial cushion against a ton of potential issues, such as unpaid rent and damage exceeding regular wear and tear.
You do, however, have to adhere to all of the state’s security deposit laws when charging a deposit. You must charge the right amount, store it properly, and return it within the specified time.
If you have more questions about security deposits, other aspects of landlord-tenant law, Pennsylvania eviction process, or need help with the management of your property, TrustArt Realty can help. We provide comprehensive property management services to property owners in Philadelphia. Get in touch to learn more!
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws change, and this post might not be updated at the time of your reading. Please contact us for any questions you have in regards to this content or any other aspect of your property management needs.