Handling Damage Deposits

Published Wednesday, November 25, 2009

Many landlords are not aware of what their responsibilities are when handling damage deposits at the end of a tenant's lease. Indiana Code 32-31-3 sets out the rules for what damage deposit funds can be used for, as well as deadlines for landlords to send notice to tenants regarding how their deposit was spent. It is crucial for landlords to understand these rules, as failing to act properly can result in forfeiting the entire deposit back to the tenant.

A damage deposit can be used to reimburse the landlord for actual damages to the rental unit or any ancillary facility that are not the result of ordinary wear and tear, all rent in arrearage under the rental agreement, rent due for premature termination of the rental agreement by the tenant, the last payment period of a residential rental agreement (if a written agreement between the landlord and the tenant stipulates that the security deposit will serve as the last payment of rent due), and to reimburse the landlord for utility or sewer charges paid by the landlord that are: the obligation of the tenant under the rental agreement and unpaid by the tenant.

The landlord must make an written itemized list of the expenses the deposit is used to cover and any additional expenses over and above the deposit amount and provide that to the tenant not more than forty-five (45) days after termination of the rental agreement and delivery of possession. The landlord is not liable under this chapter until the tenant supplies the landlord in writing with a mailing address to which to deliver the notice. Should a landlord fail to comply with the rules, the tenant may recover the entire damage deposit.

To read the statutes, click here.