Key Takeaways:
- Michigan landlords can charge a security deposit of up to 1.5 times the monthly rent and must provide written notice within 14 days explaining where the deposit is held and the tenant’s responsibilities.
- Security deposits may be used for unpaid rent money, utilities, lease violations, cleaning costs, and damages beyond normal wear and tear, such as broken fixtures or holes in walls.
- Landlords must complete move-in and move-out inventory checklists and provide tenants with an itemized list of deductions to support any withheld amounts.
- Michigan law requires landlords to return the remaining deposit within 30 days after move-out; failing to comply can result in penalties, including liability for up to twice the deposit amount.
Michigan Landlord-Tenant Laws gives landlords the right to request a security deposit from residents. As a Michigan landlord, using security deposits allows you to safeguard yourself against a number of potential financial damages that can result from renting out your home under landlord-tenant laws.
As a landlord, you can use your resident’s security deposit to cover damages incurred during the lease that exceed normal wear and tear. Such damages to your rental unit include missing fixtures, holes in the wall, broken tiles or windows, and heavily stained carpets.
If the renters cause such damages while they rent the unit, the landlord has the right to use the entire security deposit or a portion of it to cover the repair costs under landlord-tenant laws.
Aside from covering damages exceeding normal wear and tear, the landlord can also use a renter's security deposit to cover the following costs:
- Utilities if the resident fails to have paid at the time they’re moving out.
- Cost of professionally cleaning the rental.
- Unpaid rent costs that you may have incurred after the resident violated the lease or rental agreement.
- Lost money through the rental income that you have incurred and must be paid after renters abandoned their rental property.
A landlord is only permitted to charge a security deposit to a resident if the required written notice is provided within 14 days from the date they assume possession of the rental unit. Continue reading to brush up on important rules of security deposits in Michigan.
A Guide to Michigan Security Deposit Laws
As a landlord, you have certain obligations under security deposit laws. The laws govern anything from the security deposit sum landlords can charge, how they must store it, the deductions they can make, to when landlords must return it.
Going against these obligations can lead to damages to your reputation, penalties like fines, and legal fees. These guidelines apply to landlords who require a security deposit from their residents as part of the move-in costs.
1. Security Deposit Limits in Michigan
Under state law in Michigan, the maximum security deposit a landlord can charge is one-and-a-half times the monthly rent in the rental unit. The monthly rent can vary from lease to lease.
For instance, if landlords charge a rent price of $1,500 monthly for the rental unit, then the maximum sum they can charge for a security deposit is $2,250.
Charging any amount exceeding the state’s security deposit limit would be unlawful and result in fines, legal fees, and damages to your reputation as a landlord.
2. Non-Refundable Fees
The state of Michigan's security deposit law doesn’t allow landlords to charge residents non-refundable security deposits under landlord-tenant law.
Landlords have an obligation to return security deposits, minus any allowable deductions for damages, unpaid rent and other reasons listed above, after the lease ends and the resident leaves the premises of the rental unit.
3. Storing a Resident’s Deposit in Michigan
Landlords in Michigan can store their resident’ deposits in either of two ways. The first option is for the landlord to place security deposits in an escrow account. The escrow account must be in a regulated financial institution, like a bank or credit union.
The other option is for the landlord to post a surety bond or cash bond for the amount of the resident’s deposit. If you choose this option, you’d then be free to use the resident’s deposit money as your own.
Use a last termination inventory checklist to provide proof of deductions from the security deposit. Any damages to the rental unit from the prior residents beyond normal wear and tear should be written down and accounted for.
4. Written Notice After Security Deposit Receipt
According to Michigan law, residents in Michigan have a right to receive a receipt of notice from the landlord. Landlords must provide this notice within 14 days.
On the written notice, the landlord must notify the resident of the following things if a resident assumes possession of the property:
- Landlord name and the address where mail is recieved.
- The manner in which the landlord is storing their security deposit, as well the address of the financial institution, or surety where the deposit is stored.
- The resident’s obligation to provide the landlord with a forwarding address within four days of moving out.
- An inventory checklist must be provided at the time the resident is moving in.
The resident must receive two copies of the move-in checklist from the landlord. The checklist must detail all items available in the unit, such as the carpet, appliances, and windows. Obtaining possession of the security deposit must come after this inspection.
The resident must review the move-in checklist and then take note of the rental’s condition. They must then send one copy to the landlord within seven days of moving in. Be sure to include this notice period when you provide the information to the resident.
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 under the Michigan compiled laws:
- Unpaid utilities: Most, if not all, of the utility bills will be in a resident’s name during a lease term. If residents move out with unpaid utilities, you can deduct the appropriate amount from their deposit to cover the outstanding utility bills.
- Unpaid rent: Failure to pay rent is a serious breach of the lease agreement. If a resident moves out with unpaid rent, under Michigan law, you can use part or all of their deposit to cover your losses from monthly rent.
- Lease violation: Some lease violations can also cause you financial losses. An example of a lease violation 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. It is important to understand the difference between excessive actual damages and normal wear and tear.
6. A Walk-Through Inspection
Michigan landlord-tenant law gives residents a right to a walk-through inspection to take condition of the rental. Legal research and legal forms may ask for a walk-through inspection should your residents challenge a deduction to the security deposit.
This is a key aspect of security deposit law, becuase if a landlord fails to do this, it may be hard to prove the resident did the damage.
When a tenancy ends, you must complete an inventory move-out checklist and make an itemized list of damages caused to the unit that don't fall under normal wear and tear. A security deposit is considered tenant's property until a reason to withhold is proven.
7. Security Deposit Refund in Michigan
In Michigan under the security deposit law, you have 30 days once the resident moves out to return the money to the resident's forwarding address, minus allowable deductions. If you’ve made any deductions to the money, you must mail the balance alongside an itemized list of damages and their corresponding deductions to the resident’s forwarding address.
The resident should respond to the notice within seven days. If they dispute the deductions on the itemized list, it’ll be your obligation to initiate a lawsuit within 45 days of the resident moving out, but you mustn't distribute any sensitive or confidential information.
If a landlord refuses to return the deposit to the residents forwarding address it can result in the landlord paying the resident money worth up to two times the original security deposit amount. A landlord's notice of the deductions must be provided before the resident leaves.
Also, wrongfully withholding a resident’s full 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 . Disputes surrounding security deposits are handled in small claims court or district court if the amount exceeds $10,000.
8. Change in Property Ownership
If there’s a change in property ownership during a tenancy, you must transfer the deposit, minus any allowable deductions, to the incoming landlord. Then, after the transfer, you must provide Michigan residents a notice with key information, like the new landlord’s name and mail/forwarding address, to begin good landlord-tenant relationships for the new resident and owner.
Conclusion
Do you still have a question regarding Michigan security deposit laws? If you do, Compass Property Management can help.
Our team of experts has the knowledge and experience to help landlords determine damage vs. wear and tear, how to write a solid lease agreement, how to manage difficult residents, and more.
We’re a top property management company in West Michigan with the experience and know-how to fulfill all of your rental 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, qualified 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.
