The traditional way to rent a house or apartment is a simple three-step process: first month’s rent, last month’s rent, and a single security deposit. In some rental market conditions or with certain high-risk tenants there is another deposit for security: the multiple security deposit (MSD). Although the practice itself is not entirely legal, it is becoming an important topic of discussion for the owners of the property and for potential renters as well. To truly understand what MSDs are, what legal consequences they may have on both parties, and how they might affect them both, read on. For landlords: Multiple security deposits give their tenants a financial security measure that other types of deposits can’t offer. For tenants: A significant up-front financial barrier.
The Legal Landscape: Where Are MSDs Permitted?
This is the most important snippet of the MSD conversation: they are not legal everywhere. The legality of is, essentially, an entirely state / local issue. Some jurisdictions may have very specific statutes that explicitly restrict the combined amount a landlord can collect at move-in (usually up to one or two months’ rent), while others do not cover the issue at all, effectively opening a door for MSL-style practices.[NY], for example, generally does not allow any type of security deposit for non-regulated apartments greater than one month’s rent. In these areas, requiring multiple security deposits is illegal and can result in very significant penalties for the landlord. Other states (e. g. Florida or Texas) do not have any statewide statutory limit on how much a security deposit can be required for private residential housing. Before even considering an MSD, both landlords and tenants need to look at local/state landlord-tenant laws. If you don’t know the law, you cannot defend yourself. Someone who pays an illegal deposit probably has extensive grounds for legal recovery, whereas somebody collecting one can be fined and sued. This is the legal base for anything in the rental business.
The Landlord’s Perspective: Why Require Multiple Deposits?
The owner’s perspective and MSD is an excellent risk mitigation strategy. There are several compelling reasons why a landlord might choose to create such a requirement: Mitigating Financial Risk: One of the main reasons is to create a larger financial safety net. If rent and repair bills keep building up, a month’s deposit can quickly run out, leaving the owner with no security cushion. An MSD ensures funds are available to help cover the longer a tenant is out and for greater damage down payments to repair costs are often high. This is a plus for those landlords with high-end properties where repairs often require a huge Baselane. Attracting and Vetting Tenants: In an easier rental market an MSD can be an effective tool for reaching out to more reserved people than might otherwise warrant that attention. A renter is able to have good income but having recently paid medical debt, for example, is showing more money for less by offering a bigger deposit. The Tenant’s Perspective: Weighing the Pros and Cons.
Potential Advantages for Tenant
Securing a Desired Property: In a competitive market, offering an MSD can make a rental application stand out. It can be the deciding factor that wins a tenant their dream home over other qualified applicants. Compensation for Financial Incapacity: For people with bad credit, or irregular income (freelancers, new business start-ups) an MSD acts as a tangible proof of financial security and may alleviate any fears the landlord might have.
Significant Disadvantages for Tenants:
Tenants must pay substantial up-front money. The most obvious disadvantage is that a tenant would have to pay the first month’s rent plus last month’s rent (if necessary), plus a security deposit of several months at once. This amount could easily be five figures. That might make it prohibitively expensive to rent the unit. Tied up capital is money which is held by an MSD which is impractical to access for the entire tenancy, i. e. can be invested in, saved for down payment on a home, used as an emergency fund. Baselane of liquidity is a real hit to the tenant. Key Considerations and Best Practices for Both Parties The best practices are non-negotiable if both parties are operating under jurisdiction where MSDs are legal, and in question of entering into such an agreement.
For Landlords:
Know the Law: This can’t be overstated. Security deposits are explicitly allowed by your state and local municipality. Be clear and consistent with your MSD policy so as not to land you in the position of discrimination. State this clearly in all advertising and be clear with applicants. Rely on Deposit Handling Laws: MSDs must be handled in the same manner as a single deposit. That is put in a separate, interest-bearing escrow account within certain periods of time (and give the tenant the bank information)
For Tenants:
Note Legality: Before depositing you should do your local landlord laws research to make sure the landlord is legal to ask you for multiple security deposits. Negotiate. In most cases everything in a lease can be negotiable. If you have solid credentials but are being asked for a large deposit, try to negotiate it down. You can try and trade higher monthly rent for a lower deposit.
Get everything in writing: If the lease is obscenely written, you will definitely not get any peace of mind from verbal promises. All conditions related to return of deposit need to be documented. Document property condition during move-in, make a video, as well as photographic walk-through of the property. Take all scratches, stains, and imperfections and put them onto the condition report. This documented baselane will serve as your best protection against deductions during move-out. You as well as the landlord should sign this report.
MSDs as a Strategic Tool, Not a Standard
Are in a very gray area where innovative financial assurance can be new and could become one of the barriers to affordable housing. I guess you could call them a hybrid. As landlords, they can be a valuable tool for managing risk in certain circumstances but they should be managed within the legal constraints, as tenants represent a giant financial commitment that can either open doors or burden tenants. All successful landlord tenant relationships, whether they are for MSD or not, should be transparent, well communicated, and each party has a mutual understanding of what rights and responsibilities they each have under the lease and by law. By drawing up a reasonable and legally sound standard from the outset, both parties can enter into an agreement with a sense of security that the property will be Baselane properly, and that the tenancy will be well managed.