For landlords and property managers, handling security deposits is more than just collecting extra money upfront—it’s a legal and financial responsibility. Security deposits serve as protection against damages, unpaid rent, or breaches of the lease agreement. However, mishandling them can lead to disputes, legal issues, and damaged landlord-tenant relationships. To help you avoid common mistakes, here are the key do’s and don’ts of managing security deposits.

The Do’s

Do know your state and local laws.

Every state has specific regulations regarding security deposits, including how much you can charge, where the funds must be kept, and how quickly you must return them after a tenant moves out. Familiarize yourself with these rules to stay compliant and avoid fines or lawsuits.

Do provide a clear written agreement.

Spell out the terms of the security deposit in the lease. This should cover the amount collected, the conditions for deductions, and the timeline for returning the deposit. A transparent agreement helps prevent misunderstandings later on.

Do keep deposits in a separate account.

Some states require landlords to hold security deposits in a dedicated escrow or interest-bearing account. Even if it’s not mandated, separating these funds from personal or business accounts ensures clarity and avoids the appearance of misusing tenant money.

Do document the property’s condition.

Before a tenant moves in, perform a detailed walkthrough with them and create a checklist noting the property’s condition. Take photos or videos as evidence. Repeat this process at move-out. Documentation makes it easier to justify any deductions and protects both you and the tenant.

Do return the deposit promptly.

Most states require landlords to return security deposits within a set number of days after a tenant vacates, typically between 14 and 30 days. Returning funds on time—or providing a clear explanation for deductions—builds trust and keeps you compliant with the law.

The Don’ts

Don’t use the deposit as “extra rent.”

Security deposits are not meant to cover the last month’s rent unless it’s explicitly agreed upon in writing. Using the deposit improperly can leave you without protection if damages occur.

Don’t make arbitrary deductions.

You can only deduct for legitimate expenses such as unpaid rent, excessive cleaning, or repairs for damage beyond normal wear and tear. Charging for routine maintenance—like repainting walls due to normal fading—can put you at legal risk.

Don’t delay communication.

If deductions are necessary, provide tenants with an itemized list that details costs and reasons. Avoid vague statements like “general repairs.” Clear communication helps prevent disputes.

Don’t forget to keep records.

Always maintain receipts, invoices, and notes about the property’s condition. If a tenant challenges your deductions, thorough records can serve as critical evidence in your defense.

Don’t overlook professionalism.

Security deposit disputes often become emotional, but it’s important to remain professional and objective. Treating tenants fairly not only helps you avoid legal trouble but also strengthens your reputation as a responsible landlord.

Final Thoughts

Handling security deposits correctly requires knowledge, organization, and fairness. By following the do’s—such as documenting property conditions, knowing your state’s laws, and keeping deposits separate—and avoiding the don’ts, you’ll protect both your investment and your landlord-tenant relationship.