Can I Keep a Tenant’s Security Deposit?

Minnesota landlords face steep penalties if not cautious

Minnesota landlords can easily get themselves into trouble with their tenant’s security deposits. Even a simple mistake in management, like missing a deadline, could be costly. If a landlord withholds any of the deposit, Minnesota law puts the burden on them to demonstrate the expenses are legitimate. If not, landlords could be subject to fines, penalties and court costs.

When can landlords keep the security deposit?

Minnesota law allows landlords to keep a tenant’s security deposit in only two circumstances:

  • To cover late or unpaid rent
  • To pay for damages to the rental beyond normal wear and tear

Determining what is normal wear and tear is subjective, but landlords should use common sense when assessing whether they or the tenant should be responsible. For example, painting all interior walls may be normal wear and tear after a five-year lease, but not after a one-year lease. Landlords should be able to demonstrate objectively any costs for repairs or maintenance prior to withholding tenant funds.

Was there proper notice?

A common issue in security deposit disputes is whether the landlord or tenant provided the other with proper notice to end the tenancy. If the lease is for a definite term and the tenant breaks the lease before the lease ends, the tenant will owe rent for any remaining months on the lease—or, at least until the rental can be leased again to new tenants.

Often a lease is stated to end on a specific date, but both the landlord and tenant want the lease to continue. They can agree to another definite lease term, or, often the landlord and tenant will agree to continue the lease on a month-to-month basis. This is called a tenancy at will. Some landlords and tenants will agree to a tenancy at will at the outset of their lease. It is the default lease term if there is no specific lease term stated between landlord and tenant.

To terminate a month-to-month tenancy, Minnesota law requires that either party must provide written notice of intent to vacate at least one full rent interval in advance. The rent interval in a month-to-month lease is one month. To be a full interval, the notice must be received by the end of the month previous to the month vacating. For example, if a tenant intends to vacate at the end of June, the tenant must provide notice by the end of May.

Tenants will often withhold payment of rent in their final month of tenancy, and expect the security deposit to serve as payment of the final month’s rent. This is not permitted under Minnesota law. Unfortunately, there is little a landlord can do in this situation, as even an eviction cannot occur quick enough to serve any purpose.

Timing is critical

After the tenant has vacated the property and has provided a forwarding address, Minnesota law requires that within 21 days, the landlord either:

  • return the security deposit to tenant, plus 1 percent per annum interest
  • provide written explanation of why any portion amount of the deposit has been withheld by the landlord along with any remaining security deposit

Minnesota law imposes a harsh penalty on landlords who miss the deadline to mail the tenant a written explanation. The penalty amount is equal to the security deposit. In addition to the that penalty, a landlord that is found to have held tenant’s security deposit in bad faith can be fined another $500.

Small claims court

Landlords that withhold any portion of a tenant’s security deposit are at risk of being forced to defend that decision in small claims court—even for very small claims. Small claims courts have low-cost filing fees and are set up as an easy way for self-represented litigants to make their case, to be decided by a referee.

Small claims court can be a headache for landlords. Landlords that find themselves in small claims court or experience problems properly handling security deposits should sit down with an experienced Minnesota real estate attorney to ensure they avoid these problems in the future.

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