When looking for a rental home, the actual rent is only part of the deal. Before that comes the essential and substantial responsibility of paying a rental security deposit. There are good reasons for charging a security deposit as it provides security to the landlord. However, it can run into lakhs in certain cases. In addition, this lump sum payment has to be paid upfront.

But before you charge or pay the required amount, you must understand what a security deposit entails. Here’s a short primer: 

What is a rental security deposit?

A rental property security deposit is a refundable amount that a tenant pays the landlord at the start of a tenancy. This amount is generally decided according to the prevailing customs in the micro market –  typically, two to three months of rent. However, in certain places, it can exceed a year’s cumulative rent, creating a substantial financial burden for the tenant. 

The amount of the security deposit is defined as per state laws. Hence, it can differ from one state to another. In practice, the amount is often influenced by micro markets. So, you may find different practices in different localities within the same city. 

Why do landlords charge security deposits?

As the name suggests, the security deposit is meant to protect the interests of the landlord. For instance, it can safeguard them against losses if the tenant fails to pay the rent. The landlord can deduct:

• Unpaid rent arrears 
• Cost of repairing any damage to the property
• Any other fee as specified in the rental agreement

This damage does not include normal wear and tear of the property. For instance, the landlord may charge for a broken window pane, but not for the wall paint peeling off after a few months. 

Getting a deposit refund

Once the tenancy ends, the landlord must return the security deposit to the tenant. However, there are cases where the landlord may withhold the payment unfairly, using different pretexts. This is where a rental agreement becomes so important. As a legal document, it specifies the landlord and the tenant’s financial obligations. 

Do’s & Don’ts 

• Make sure there is a rental agreement signed by both landlord and tenant.  
• File the rental agreement with the sub-registrar office so that it is a legally binding contract. There should be no hidden clauses.
• Specify the security deposit amount and when it should be refunded.
• Specify the financial obligations of both landlord and tenant. 

To know more, read our article on why you should insist on a rental agreement.

FAQs

Is there a law regulating rental security deposits? 

Rental security deposits come under the Model Tenancy Act, 2021. However, since Land and Urban Development fall under state subjects, the act is not binding on states. So far, only four states, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, and Assam have revised their state regulations in line with the Model Tenancy Act, 2021.

How much should be the security deposit for a house rental? 

The Model Tenancy Act, 2021 limits security deposit to a maximum of two months’ rent for residential purposes. For non-residential properties, the deposit is a maximum of six months. In practice, charging security deposits are often influenced by trends in the micro market. 

Is a security deposit refundable?

Yes. However, it is not uncommon to see disputes regarding the refunded amount. Many landlords add on charges, asking for repairs or other payments. This is why a rental agreement that specifies each party’s obligations is so important. 

Can you ask for receipts?

Yes, you should ask for a payment receipt of the security deposit. It should contain details like the date, cheque number, and signature of the owner.

Can the landlord be penalised for late refunds? 

Yes. But remember, this can be enforced only if it is mentioned in the rental agreement. Hence, the agreement should specify the timing of the refund and the terms of penalty in case of delay. 

How can ApnaComplex Rentals help?

If you are unsure of how to go about framing a rental agreement, ApnaComplex Rentals can help you. It provides all-inclusive services that includes support in creating and registering a rental agreement. It also offers landlords tenant KYC and background verification for added security. 

If you want to know more about ApnaComplex Rentals, visit realty.apnacomplex.com or write to us at rentals@apnacomplex.com.