Michigan Landlord-Tenant Laws gives landlords the right to charge their residents a security deposit. As a landlord, this allows you to safeguard yourself against a number of potential financial damages that can result from renting out your property.
You can use your resident’s security deposit to cover damages exceeding normal wear and tear. Such damages include missing fixtures, holes in the wall, broken tiles or windows, and heavily stained carpets.
If a resident causes such damages, you can use part or all of their security deposit to cover the repair costs.
Aside from covering damage exceeding normal wear and tear, you can also use a resident’s security to cover the following things:
- Utilities that they haven’t paid by the time they’re moving out.
- Cost of professionally cleaning the property.
- Loss in rent payments that you may have incurred after the resident violated the lease agreement.
- Lost rental income that you may have incurred after the resident abandoned their rental property.
A Guide to Michigan Security Deposit Laws
As a landlord, you have certain obligations under the state’s security deposit laws. The laws govern anything from the security deposit amount you can charge a resident, how you must store it, the deductions you can make, to when you can return it.
These guidelines apply to landlords who require a security deposit from their residents as part of the move-in costs.
1. Michigan Security Deposit Limit
In Michigan, the most you can charge a resident as a security deposit is 1.5X months’ rent.
For instance, if you charge a monthly rental price of $1,500, then the maximum you can charge as a security deposit is $2,250.
Charging any amount exceeding the state’s limit would be unlawful.
2. Non-Refundable Fees
The state of Michigan doesn’t allow landlords to charge residents non-refundable security deposits. You have an obligation to return the resident’s deposit, minus any allowable deductions, after the resident leaves their premises.
3. Storing a Resident’s Deposit in Michigan
Landlords in Michigan can store their residents’ deposits in either of two ways. The first option is to place a resident’s deposit in an escrow account. The escrow account must be in a regulated bank or financial institution.
The other option is to post a surety bond or cash bond for the amount of the resident’s deposit. If you go with this option, you’d then be free to use the resident’s deposit money as your own.
4. Written Notice After Security Deposit Receipt
Residents in Michigan have a right to be notified after receipt of their deposit by the landlord. You must do this within 14 days.
On the written notice, you must notify the resident of the following things:
- Your name and address.
- The manner in which you’re storing their security deposit, as well the address of the financial institution, or surety where you’ve stored the deposit at.
- The resident’s obligation to provide you with a forwarding address within 4 days after moving out.
- The other document you must provide your resident after receipt of their deposit is an inventory checklist. This must be done at the time the resident is moving in.
The resident must receive two copies of the checklist.The checklist must detail all items available in the unit, such as the carpet, appliances, and windows.
The resident must review the checklist and then take note of the property’s condition. They must then send one copy to you within seven days of moving in.
5. Reasons to Withhold a Resident’s Security Deposit in Michigan
In Michigan, you can make deductions to a resident’s security deposit for any of the following reasons:
- Unpaid utility bills: Most, if not all, of the utilities will be in a resident’s name during a lease term. If they move out without paying them, you can make appropriate deductions on their deposit to cover them.
- Unpaid rent: Failure to pay rent is a serious breach of the lease agreement. If a resident moves out with pending rent bills, you can use part or all of their deposit to cover your losses.
- Lease violation: Some lease violations can also cause you financial losses. An example of this is when a resident abandons their rental unit. In such a situation, you can cover your losses by making appropriate deductions on their security deposit.
- Damage exceeding normal wear and tear: Examples of this kind of damage include missing fixtures, holes in the wall, and broken windows or tiles.
6. A Walk-Through Inspection
Michigan law gives residents a right to a walk-through inspection.
When a resident is moving out, you must complete an inventory checklist and take note of any damage caused to the unit.
7. Security Deposit Refund in Michigan
In Michigan, you have 30 days once the resident moves out to return the resident’s deposit, minus allowable deductions. If you’ve made any deductions, you must send the balance alongside an itemized list of deductions to the resident’s forwarding address.
The resident will then have 7 days to respond to the notice. If they dispute the deductions, it’ll be your obligation to initiate a lawsuit within 45 days of the resident moving out.
Failure to do this when there is a dispute between you and the resident can result in you paying the resident up to 2X the original security deposit amount.
Also, wrongfully withholding a resident’s security deposit can have potential legal ramifications. You may forfeit any right to withhold any portion, as well as become liable for the resident’s expenses and legal fees.
8. Change in Property Ownership
If there’s a change in property ownership, you must transfer the deposit, minus any allowable deductions, to the incoming landlord. Then, after the transfer, you must notify the resident about the new landlord’s name and address.
Do you still have a question regarding Michigan security deposit laws? If you do, Compass Property Management can help.
We’re a top property management company in West Michigan with the experience and know-how to fulfill all of your property management needs. Get in touch today to learn more!
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws change, and this post might not be updated at the time of your reading. Please contact us for any questions you have in regards to this content or any other aspect of your property management needs.