The security deposit. It is perhaps the most contentious issue between a landlord and their tenant. The question of not returning a tenant’s security deposit can be tricky, especially if you don’t know when you should or should not return it. You must always keep in mind that Michigan law does NOT permit a landlord to dispose of or use any portion of the security deposit until such time as the tenant has vacated from the property. This information is not intended to be a comprehensive guide to security deposits and you should contact legal counsel before taking any action related to a security deposit.
While it can vary depending on the situation, there are generally five reasons that would allow a landlord to keep the security deposit. They are as follows:
- Nonpayment of rent
- Unpaid utilities
- Damage to property
- Early lease termination
Nonpayment of Rent
If a tenant stops paying their rent, you can keep all or a portion of the security deposit to cover the missed payment after they’ve vacated. To address non-payment while the tenant is still occupying the property you may have to start the eviction process.
Just as you can use a security deposit to cover missing rent payments, you can also use it to cover missing utility payments. This only applies to utilities left unpaid after the tenant has vacated. If a tenant is failing to reimburse you for utilities you are paying on their behalf (like water), you may have to start the eviction process.
Damage to Property
Property damage is the most common reason for landlords keeping a security deposit. Keep in mind, though, that property damage is different from normal wear and tear. The latter includes small nail holes, dirty grout, loose handles, and small stains. The former, however, includes missing outlet covers, large stains, large holes in the wall, water damage, broken windows, and more. Damages must be assessed upon the tenant vacating the property and there are strict timelines and processes you must follow.
Early Lease Termination
Finally, if a tenant terminates their lease early, then you most likely have a right to keep the security deposit. After all, a lease is an agreement, and by breaking that agreement, the tenant incurs a liability for accrued and unpaid rents and potentially for future rents due under the lease.