Will Security Deposits Be Banned In The Future, Winston Rowe & Associates
For years a security deposit has been the main tool landlords rely on when tenancies don't work out as planned.
By: Winston Rowe and Associates
More than half of all states limit the amount of security deposit a landlord can collect – usually to one to two months' rent.
Also, many require landlords to return security deposits as soon as 14 days after move-out. In the last year, a couple progressive cities passed a new security deposit law that takes these limitations a step further.
But due to the pandemic and affordable housing crisis, there is now a push to eliminate a security deposit requirement altogether.
Some security deposit proposals include.
A reduced security deposit that is half of one month's rent
A security deposit that is split into three payments over the course of six-monthly installments
Although there are no clear penalties on landlords who do not follow these rules, a tenant could sue the landlord for damages if the landlord refuses to accept a security deposit alternative prior to lease signing.
What should landlords do?
The trend towards security deposit alternatives is gaining momentum we predict many other cities and states will be jumping on board too.
It's important that as more cities and states begin to adopt these new security deposit laws that landlords are aware of what they can do to mitigate their risk without a security deposit. Accepting a security deposit in payments is problematic.
Tenant defaults are most common during the first six months of a tenancy, which means you may have very little to fall back on if the tenant stops paying rent early on. Similarly, accepting half of first month's rent as a security deposit isn't going to be even close enough to cover your losses in most cases.
This article was prepared by Winston Rowe & Associates https://www.winstonrowe.com they are a national consulting firm specializing in due diligence for commercial real estate transactions.
Winston Rowe & Associates