The District of Columbia, with its rich history of protecting the rights of tenants, has strict rules governing security deposits on residential leases. Landlords who manage their own properties and professional managers should be familiar with these rules.
Limitations on the amount of the security deposit. The deposit shall not exceed one month’s rent, and only charged once. See DC Municipal Regulation 14 DCMR 308.2.
Where Security Deposits should be held. The landlord should have an interest-bearing, separate bank account, in the District of Columbia, with FDIC or similar insurance. That account could be used for multiple security deposits, but should be segregated from the landlord’s other accounts. 14 DCMR 308.3.
Interest on Security Deposit. The tenant is entitled to interest from the date the tenant paid the deposit, if the lease is for more than 12 months. 14 DCMR 311.2. The best solution is to make sure that the bank account is interest-bearing. The tenant is entitled to the “statement savings rate” that the bank offers. The rules state that that rate must be tracked in 6-month intervals. At the end of each year, the landlord should create a notice:
Bank where Security Deposit(s) are held: __________________
Interest rate for Jan 1 – June 30: __________________
Interest rate for July 1 – December 31: __________________
This notice should be posted in the “rental office” and in the “lobby”. 14 DCMR 308.7
The landlord should keep a copy of all these notices, because, at the end of the lease, the tenant is entitled to a list of the interest rates for each 6-month period of the lease. 14 DCMR 308.7
If the Security Deposit is not held in an interest-bearing account. If the landlord does not use an interest-bearing account, the interest due to tenant is at a higher rate – the “judgment rate of interest”. That is the interest rate that plaintiffs would be entitled to, in the District, if they win their suit. The historical judgment interest rate is available at: https://www.dccourts.gov/sites/default/files/matters-docs/Historical-Judgment-Interest-Rate.pdf
What can be deducted from the Security Deposit. The landlord may deduct unpaid rent and for damages to the unit, as long as the lease spelled out the specific responsibilities of the tenant. 14 DCMR 308.6, 14 DCMR 309.1 and 42 DC Code 3502.17. Thus, the lease should spell out what costs may be deducted from the security deposit. There may be no deductions for “ordinary wear and tear” defined as:
“[D]eterioration that results from the intended use of a dwelling unit, including breakage or malfunction due to age or deteriorated condition. The term “ordinary wear and tear” does not include deterioration that results from negligence, carelessness, accident, or abuse of the unit, fixtures, equipment, or other tangible personal property by the tenant, immediate family member, or a guest.” 42 DC Code 3502.17.
Accounting and Payment for Security Deposit at end of lease: The landlord has 45 days from the termination of the lease to either pay the tenant the security deposit plus accrued interest (along with the chart of interest rates applied) or deliver a Notice that the landlord intends to make deductions, along with a check for the difference, if any, and the chart of interest rates. 14 DCMR 309.1 The Notice has to be:
- Sent within 45 days after termination of lease
- Delivered personally to tenant or by certified mail to tenant’s last known address (landlord to use good faith effort to find it).
- State that landlord intends to withhold and apply the monies defraying the cost of expenses properly incurred under the terms and conditions of the security deposit provisions of the lease.
- A copy of the interest rate chart.
Within 30 days after the initial Notice, the landlord has to deliver to tenant:
- a refund of the balance of the deposit, plus interest
- an itemized statement of the repairs or deductions including the dollar amount of each.
If the landlord ignores these deadlines, the tenant is generally entitled to a full refund of the security deposit and interest. 14 DCMR 309.3 Landlords should not make frivolous refusals to return money or be motivated by fraudulent, deceptive, dishonest, or unreasonably self-serving purpose, or the tenant could be entitled to triple the security deposit. 14 DCMR 309.5
Being a landlord in the District has its challenges, not the least of which is making sure your lease spells out what damages the tenant is responsible for, keeping track of interest rates, and marking your calendar for timely refund of security deposits.