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Tuesday, March 3, 2009

Requirements for Security Deposits for Residential Leases

The current economic downturn we are all suffering through has brought an increased focus on renting property. Many individuals and families, unable to afford their mortgage or rent, have downsized to save money. Other people looking for investment opportunities have begun buying rental properties. In all of these situations it is critical people know both their rights and obligations with respect to security deposits. Connecticut has some very specific requirements which are not complicated but which can create an unwelcome trap for anyone who does not follow the rules. Note that these requirements only apply to residential property, including single-family homes.  They do not apply to commercial property.

 Amount: For tenants under the age of 62, the maximum security deposit which can be required is two months’ rent, plus the current month’s rent. For tenants age 62 and older, only one month’s rent is allowed for a security deposit, plus the current month’s rent.
 
Bank Account: All security accounts must be deposited in a bank account at a financial institution located in Connecticut. That means the account must be set up at a branch here in the state. The account must be used solely for security deposits and cannot be commingled with the landlords own funds. But security deposits from different properties can be commingled in one account. There does not need to be a separate account for each property, although this is a good idea for large properties. Of course, the landlord should keep accurate records of all accounts and security deposits.
 
Interest. Landlords must pay interest on security deposits at the rate of 1.5% each year. The interest is required to be paid yearly on the anniversary of the start of the lease. If the account earns a lesser rate, the landlord must make up the difference. If the account actually pays more, the landlord can retain the excess.
 
Refund of Security Deposits. When a lease ends, there are very specific requirements for refunding security deposits. If the landlord does not follow these rules, there are substantial penalties. When a tenant leaves, the landlord should obtain a forwarding address for the tenant. If the tenant provides a forwarding address, then the landlord has thirty days from the end of the lease to return the security deposit (plus the required interest) or to provide a list of any damage to the property and the balance of the security deposit after deducting the cost to repair the damage. The list must be itemized and must list the cost to repair for each area of damage.  Of course, damages can include unpaid rent.  If the landlord does not have the tenant’s forwarding address, then the landlord has fifteen days following the date the landlord receives the address to return the security deposit or to provide the list of damages. So if the tenant breaks the lease and does not leave a forwarding address, the landlord would not be immediately required to return the security deposit.
 
If the landlord does not refund the security deposit or provide the itemized list within the statutory time period, then the landlord is automatically liable for double the amount of the security deposit. There is no defense to this liability, even if the tenant has caused substantial damage to the property. Therefore, it is critical that the landlord follow the statutory procedure.



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