An Overview of Security Deposits in Georgia
Georgia security deposit laws serve a very important purpose for both landlords and tenants. For the tenant, the security deposit serves to protect their rights to have any damage they may cause as a result of their occupancy repaired and ensure that they return the property to the landlord in a similar condition as at the time of occupancy. For the landlord, the security deposit is a very important tool that can be used to obtain payment for damages to their property without the need for a lawsuit.
Most people understand what a security deposit is. Simply put, it is a sum of money paid by a tenant to their landlord to help guarantee that they pay for their rent and maintain the property. In Georgia, security deposits are covered by O.C.G.A. § 44-7-31 et seq. The law essentially provides that, upon termination of the lease, the landlord may deduct amounts for damage and past due rent from the security deposit held by the landlord. Other than these limited circumstances, Georgia law treats any security deposit and prepaids as trust funds and prohibits landlords from commingling these funds with their own. O.C.G.A. § 44-7-32(b) .
As a means of protecting the tenant and ensuring that these funds are handled properly, the law has very specific rules regarding any deductions made to cover alleged damages to the property. Importantly, the law states that the only amount permitted to be deducted from a security deposit are those amounts that are required to be paid under the terms of the lease, by statute, or because of amounts being past due under the lease. O.C.G.A. § 44-7-34. Further, any deductions must be quantified and supported by appropriate documentation if challenged by a tenant. Id.
In light of this, in a majority of leases, you will notice a provision addressing how security deposits are handled and what amount may be deducted from the security deposit to address damages to the property. To ensure compliance with Georgia law, a copy of the written lease should be provided to the tenant upon signing. See, O.C.G.A. § 44-7-31(a). It is also important to notify the tenant of any deductions taken from their security deposit. Id. In fact, if requested, the landlord must provide the tenant with a written, itemized list of deductions. O.C.G.A. § 44-7-34(b). Failure of a landlord to comply with these requirements can give rise to civil liability against the landlord. O.C.G.A. § 44-7-35.
Restrictions on Security Deposits
In Georgia, the law limits the amount of a security deposit that a landlord may require a tenant. If the security deposit is equal to or less than two times the monthly rent, the security deposit law states that the security deposit is presumed to be reasonable. This presumption is only for the purpose of placing the burden of proof on the tenant in a lawsuit to recover the security deposit. If the security deposit is greater than two times the monthly rent, then the landlord bears the burden of proof in showing that it is reasonable.
For example, if the monthly rent is $1,000.00 and the tenant provides a $500.00 security deposit, then the $500.00 security deposit is within the limits of what Georgia judges view as reasonable. If there is no other agreement between the parties, then the $500.00 security deposit would be legally returned to the tenant within the time set forth in the security deposit law without the landlord having to file a lawsuit to retain any portion of the security deposit.
If the monthly rent is $1,000.00 and the tenant gives a $2,500.00 security deposit, then the $2,500.00 security deposit would be more than 2 times the monthly rent and the landlord would have the burden of proof in showing that the larger deposit is reasonable.
If the security deposit is calculated as a multiple of the monthly rent, but the lease includes charges other than rent, then the security deposit might very well exceed 2 times the rent. For instance, if the monthly rent is $1,000.00 and the lease specifies that the tenant also must pay $1,000.00 in utilities, then the jurisdiction in which the apartment is located should look to both the rent and the utilities to make a determination of whether the amount of security deposit exceeds the statutory limits.
Please bear in mind that a security deposit saying it is a certain amount is not enough to deem the amount a "security deposit." If the security is characterized by the lease as a key deposit, pet deposit, etc., then the court may consider that sum a non-refundable charge and treat it as a non-security deposit. The best practice is to label the deposit as a "security deposit" in the lease.
What Disclosures are Required of a Landlord?
The landlord must provide you the following information about the security deposit if you paid one (Georgia law does not require a security deposit):
- The Georgia address where the security deposit is maintained. This is not always the same address where the rent is paid; the landlord may have a central office that collects all rent.
- You are entitled to the full amount of the security deposit within five days after the tenant vacates the premises, or 10 days after the tenant gives the notice to vacate, whichever occurs first.
- If any part of your security deposit is withheld for damages or other charges beyond normal wear and tear, the landlord must provide you with a written account of those damages and charges.
- Any hold back for charges other than for rent must be based on good faith estimates or fair market value at the time of the move-out.
- All security deposits on "residential rental property, whether located within or outside Georgia," must be held, and not commingled with the landlord’s funds, in an account at an FDIC-insured bank located in Georgia. The law also provides that security deposit account must be either in:
a. An account identified in writing to the tenant as the escrow account for the security deposit, or
b. A general multiple-purpose escrow account containing security deposits for more than one tenant but with a designation of each tenant by name and unit number on the records of the bank.
When you see the term "escrow," it is important to understand that your security deposit cannot be held in a personal account owned and controlled by the landlord. Even though the bank account in which your deposit is maintained may be in the landlord’s name, the account is really an escrow account designated for security deposit by your landlord. The bank will require a signed form from you allowing the landlord to deposit your security deposit in its bank. When you get this form, make sure that the account is identified as an "escrow" account. If it is not, tell the landlord or its agent that he has to maintain the security deposit in a "residential rental property," and also has to show the tenant’s name and unit number on the bank records, so that the account clearly is a trust account.
Any interest on a security deposit must be paid to you, the tenant, and any interest must be compounded annually or otherwise credited to you on the basis of the monthly average balance. In practical terms, however, you will not earn a lot of interest on a security deposit. Most landlords have a pretty low rate of interest for security deposits. For example, I think that many do not give any interest at all on security deposits.
Proper Maintenance and Storage of Security Deposits
The security deposit must be held and maintained in the checking account (or other bank account) of the owner of the dwelling unit or his or her agent. The landlord may also maintain the security deposit in an interest-bearing account in a financial institution if the owner or his or her agent either (i) notifies the tenant in writing and then obtains written consent prior to deposit or (ii) obtains prior written permission from the tenant. If the owner maintains the security deposit in an interest bearing account, the owner may retain the interest, (provided that the deposit is less than $50) or the owner may pay the interest to the tenant at the rate and in the manner provided in the written lease agreement or rental agreement, if any has been executed.
Landlords are required to post notice of the following in a conspicuous location on the premises of the dwelling unit and to provide tenants with such notice prior to the date of occupancy: In addition, a landlord may not require payment of additional rent to cover the cost of the security deposit. Nor can landlords make changes to the security deposit policy after the date the tenancy was entered into unless to do so would be consistent with a prior written lease or rental agreement.
Landlords are required to provide tenants with an accounting of the disposition of the security deposit along with a copy of the statement and copies of the items deducted in any situation where amounts are withheld. However, if the amount withheld for damages is less than $50, a landlord may produce the items withheld for inspection during regular business hours.
Security deposit refunds must be delivered to the tenant by first class mail or electronic transmission to the place to which rent is paid, unless the parties otherwise agree in writing.
Conditions for Returning Security Deposits
The security deposit must be returned to the tenant within one month after the termination of the lease agreement (or within 5 business days after the termination of the lease agreement if the landlord and tenant have an agreement allowing a longer period of time) less any lawful deductions. For security deposits in excess of $50, however, if the landlord fails to comply, they are liable to the tenant in the amount of the deposit plus attorney’s fees. The property must be in substantially the same condition as at the time of the execution of the lease, ordinary wear and tear excepted. This mirrors the Residential Landlord-Tenant Act requirement that in addition to the condition of the property at the commencement of the lease, any other provisions for its return should be in writing and signed by the landlord and tenant if they differ from the general rule. For a commercial lease, if there are different requirements for the condition in which the security deposit is to be returned, these conditions need to be set forth in writing and signed by the landlord and tenant. The concern in these scenarios always is the disposition of the security deposit is determined according to statute in the absence of a different written expectation signed by both the landlord and the tenant.
Filing Disputes and Making Claims
Disputes over security deposits in Georgia are fairly common and can often give rise to misunderstandings and disagreements between landlords and tenants. Dispute resolution procedures dictate how much time landlords have to return a tenant’s security deposit, how much can be withheld, and what happens if the landlord wrongfully withholds the deposit or some of its funds. Guarantors are not in control of the premises. The good news for tenants is that any person who has paid rent at least once but has moved out of the rental unit may bring a civil action against the landlord, the property owner, builder, broker, or agent for the return of the tenant’s security deposit or any undisputed portion of it. A landlord is required to pay the amount of security deposit due within one month after the original termination date of the lease or the occupancy period, whichever is legal or contractual. The law also specifies the exact procedure landlords must follow to account for and return security deposits to former tenants . If the landlord fails to provide the accounting along with any security deposit refund within the above-mentioned deadlines, the entire security deposit must be returned. Depending on whether the entire or some of the security deposit is withheld, the entire amount, or only the wrongfully withheld portion, will be subject to penalty. If the entire security deposit is withheld, the entire amount will be subject to a penalty. If only a portion of the deposit was withheld, the penalty will only apply to that portion unless the landlord misled the tenant in writing and in bad faith and the tenant pays a penalty in the lawsuit. The method of claiming damages from a tenant’s security deposit is largely dependent on the specific provisions of the lease. When a landlord or a property owner or both have used a tenant’s security deposit to cover losses from the tenant’s alleged breach of the lease, however, the tenant can specify claims to damages from those deposits in the lawsuit brought by the tenant. The landlord will have to return any amount held in deposit and claim damages as part of its defense.
Penalties for Violations
As mentioned earlier within this article, A landlord is not obligated to return any amount of the security deposit until both parties have complied with the law. As you might image, this leads to some rather heated disputes. The laws which govern the return of security deposits in Georgia impose stiff penalties upon a landlord if the law is violated.
A landlord who fails to comply with the provisions of Georgia’s security deposit law (O.C.G.A. Section 44-7-31 through 33) is subject to a penalty of $1,000 or three times the interest on the security deposit on which interest was not paid. The tenant’s recourse is to seek double damages, attorney fees and costs of litigation in a lawsuit asserted in the Magistrate Court of the County where the real property is located.
Failure to Comply with the Statutory Time Limits In short, if not within three business days before a landlord may enter a tenant’s premises to inspect the premises, fail to give notice to the tenant that the proposed exit inspection will occur, and/or the exited premises has not been inspected for damages by the landlord within five business days after the expiration date of the rental agreement (or any tenant holding over), then a landlord has violated the statutory time limits.
Refunding the Tenant’s Security Deposit Before Full Termination of the Lease Although not required by statute, if the landlord returns the renter’s security deposit prior to the termination of the rental agreement, the tenant is still liable for any and all damages his/her occupancy may cause to the premises.
Practice Tip: It is also worth noting that if the lease between the landlord and tenant requires the landlord to pay all utility services for the benefit of the tenant, then even if the lease terminates and the landlord no longer is responsible for the payment of a utility service, the landlord must pay for such utility service until both: (1) the landlord receives notice from the utility service regarding the discontinuation of same and (2) the landlord has had a reasonable opportunity to obtain the discontinuation of the utility service.
A tenant who violates any material provision of the Code Section concerning the return of the security deposit, a court is authorized to award costs, including reasonable attorney’s fees to the party who prevails in the suit. In addition, if a person knowingly and willfully accepts an application fee without first complying with the provisions of O.C.G.A. Section 44-7-30 through 33, that person is subject to a fine, upon conviction, of not more than $300 or by imprisonment for a term not exceeding three months, or both. Aweal v. Coleman, 256 Ga. 745, 353 S.E.2d 900 (1987). Additionally, a violation of the statute shall be a deceptive trade practice under Ga.Code Ann. § 10-1-370.
Best Practices for Tenants and Landlords
In order to minimize the potential for disputes when it comes to the return and accounting of security deposits, tenants and landlords should be aware of the following:
Tenants:
(Note: Absence of a security deposit agreement does not eliminate the legal effect of a security deposit.)
Landlords:
(Note: It is recommended that landlords keep records in the event they are forced to go to court to show how and why deductions were made. The best way to do that in most cases is to snap a cell phone picture of the unit with the damaged area in question, then email or text it to the tenant so that the timestamp on the photographic evidence indicates the timing of the damage. If it’s mold – it’s always recommended to snap a picture of the entire area, then close up, just in case some of it cannot be seen by taking a picture of only the spot in question.)
Conclusion and Summary
In conclusion, understanding the ins and outs of security deposit laws in Georgia can save landlords and tenants from headaches down the line. From the maximum amount to collect to the simple do’s and don’ts of security deposit return, this guide has covered the essentials. It’s crucial to adhere to these laws to not only protect your own assets but also to maintain a positive relationship with your tenants and set a good example for your business .
The most important things to remember are that you must not collect more than the state-mandated maximum, you should keep the money in a separate interest-bearing account, and you need to provide the tenant with an itemized list of deductions (with a receipt) if you deduct from the security deposit upon move-out.
If you’ve followed all the rules, then you shouldn’t have any issues when it comes to the return of a security deposit. Whether you’re a landlord or a tenant in Georgia, you’re now armed with the information to fully understand how security deposits in our state work.