Apartment hunting has never really been known as one of those leisurely things to do on a Saturday afternoon. Rather, it’s more of a day-by-day race against a clock that ominously ticks closer to your move-in deadline, and a beat-the-clock race against others who could nab a desired apartment before you do.
If you’re the first to whip out the checkbook and write a security-deposit check, you usually win the apartment. But at the finish line when you finally catch your breath, you ask yourself an unnerving question: By the way, what is this security deposit I paid and where will my money go–directly into the landlord’s pocketbook?
Just knowing what a security deposit is, and how it works, will make handing over your hard-earned dollars a less-anxious moment, so you can enjoy the victory of finding an apartment.
A security deposit, initially, is money you pay a landlord as a guarantee that you want to move into a particular apartment. Once the money is put down, the unit is taken off the market while the landlord processes your leasing application. If your application is accepted, the apartment is yours, and the landlord holds onto the deposit; if not, then the security deposit is fully refunded.
“Be sure it’s the apartment you want,” says Peter Lazarri, president of Visual Properties Inc., a Chicago-based rental service. “When you put down a security deposit, you’re making a commitment.” There isn’t a required amount landlords are supposed to charge for security deposits; the amount varies from city to city, from landlord to landlord.
“There’s no rule that determines what to charge for security deposits,” says John Vranas, director of the Chicago Association of Realtors, an industry association with membership of more than 6,500 Chicago-area Realtors who own rental property. Each landlord can set his own price to compete in the rental market by offering would-be renters a lower deposit than the building down the street.
Typically, says Vranas, the amount of security deposit is equal to one month or 1 1/2 months’ rent. “You might even find some landlords, as an incentive, go lower than one month’s rent,” adds Lazarri. “On the other hand, landlords with prior bad experiences with tenants may charge higher.”
A security deposit is more than a marketing tool to landlords, it’s an insurance policy, of sorts, that they may need after the tenant vacates a unit. Landlords use the deposit to pay for damages a tenant may cause to a unit or for unpaid rent. For tenants, a security deposit carries an interest-earning benefit; by law, residents are entitled to a yearly interest on the security they paid.
Some residential properties are excluded from interest laws; for instance, in Chicago, owner-occupied buildings of six or fewer units are exempt from paying tenants annual interest.
State and local laws dictate that landlords can’t mingle security deposit with other moneys, which helps prevent bad landlords from lining their pockets. The money must be held in an interest-bearing account, with the interest determined each year by the state’s average payment on savings, money market funds and certificates of deposits. In Chicago, for instance, the comptroller’s office sets the yearly rate on Jan. 1; in 1998, the interest rate for security deposit is 3.38 percent.
“Know the current interest rate and read your city ordinance to learn your rights so you’re clear about security deposits,” says Peter Coffey, spokesman for Chicago City Clerk James J. Laski. The clerk’s office administers Chicago’s Residential Landlord and Tenant Ordinance. “Laws on security deposits are included in your ordinance summary, which, in Chicago, must be attached to your rental agreement.”
A security deposit is returnable to the tenant when he or she vacates a unit. The landlord can, however, deduct any damages the renter left behind.
“One of the biggest frustrations for landlords is not being able to adequately cover damages,” says Cary Schiff, a Chicago-based attorney specializing in landlord representation. Damages for which landlords dock security deposits, such as holes in walls and stains or tears in carpets, are in excess of the normal apartment wear and tear of faded paint or worn carpet. “Landlords can use some or all of the deposit, depending on how much it will cost to repair the damages.”
To prevent any deductions from being taken, experts offer tenants these tips on how to handle security deposits before, during and after a lease is signed:
– Pay with a check or money order and keep records. When you pay, get a receipt. Keep your canceled check as proof of payment.
– Perform a pre-move-in inspection. Walk through the apartment and list every item in the unit that is broken, stained, torn, burned or marred in any way. Sign and date the list; keep a copy for yourself and send one to your landlord. Take photographs of the apartment to further document the unit’s condition.
– Keep the apartment in good condition and leave it in the same condition as when you rented it. Keep the apartment clean. Have the landlord do all the unit’s repairs and picture hanging.
– Give your landlord reasonable notice before vacating the unit. Check your lease to see how many days notice are required before you move out. Tenants, in some cases, can be charged for next month’s rent if they didn’t give sufficient notice.
– Perform an exit inspection with your landlord. Compare the pre-move-in inspection list of apartment flaws to the condition of the apartment on the last day of your lease. Both you and your landlord should sign and date the exit-inspection list. Take photographs of the apartment to document its condition when you leave.
“It’s important that tenants keep records of the apartment’s condition, so a bad landlord can’t create damages after you’ve vacated,” says John Bartlett, hot-line coordinator of the Metropolitan Tenants Association, a non-profit tenants organization that assists Chicago renters with legal questions and lawyer referrals.
“Most landlords are good about refunding a security deposit when the apartment is left in the same condition before the lease, minus the usual wear and tear,” he says. “Going through the inspection process with your landlord is beneficial so you see things eye to eye.”
Chicago’s landlord-tenant ordinance requires landlords to inform former residents within 30 days of the end of the lease whether deductions will be taken.
“If repairs are necessary,” says Schiff, “landlords have to send an itemized repair list to the former tenant.”
The full or remaining balance of the security deposit is required by Chicago law to be returned to tenants within 45 days after they moved out. Landlords typically reimburse a security deposit with a check, but all the hard work of upkeep and documenting won’t be worth much if the landlord can’t find you after you’ve moved.
“Don’t forget to give the landlord your forwarding address,” says Coffey. “Otherwise, he or she won’t know where to send your check.”
Current and soon-to-be Chicago residents can pick up a free copy of the Residential Landlord and Tenant Ordinance in the city clerk’s office at City Hall in room 107. For outlying suburbs, visit the local city hall, municipal building or library.
If you have questions or concerns about your security deposit, contact the local city hall for guidance; in Chicago, contact the city’s law department at 312-744-5000.
