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This article provides general information and is not legal advice. For accuracy and specific guidance on landlord-tenant laws, consult an attorney before making any decisions or taking action.
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As part of the rights given to landlords in Michigan under the Michigan Landlord-Tenant Act, they have the right to request and collect security deposits from tenants. These deposit fees aim to provide landlords with financial protection should the tenant fail to meet their lease obligations or otherwise violate the lease agreement.
However, landlords need to note that there are specific Michigan laws that govern how security deposits are collected, used, and returned. These regulations are detailed in the Michigan Compiled Laws (MCL) § 554.604.
Both landlords and tenants need to understand and follow these Michigan security deposit laws. Failing to do so can result in legal and financial repercussions.
This article offers landlords a detailed overview of Michigan's security deposit laws, including the maximum deposit amount allowed and the proper procedure for returning deposits.
The maximum security deposit limit is equal to 1.5x the monthly rent amount as specified in Michigan Compiled Laws (MCL) § 554.602.
In Michigan, landlords have the discretion to request an additional security deposit to cover potential damages caused by a tenant's pet. However, this practice has a notable exception.
Under the Federal Fair Housing Act and Michigan's Persons With Disabilities Civil Rights Act, it is illegal to charge a pet deposit or any additional fees for service animals assisting tenants with disabilities.
Michigan landlords have the right to request a security deposit from tenants to cover potential damages or unpaid rent, as outlined in MCL § 554.601. As for the payment method, both the landlord and tenant can agree on a convenient means of payment.
Before collecting a security deposit, always make sure to conduct a thorough move-in inspection with the tenant. Document the property's condition at the start of the lease to prevent disputes over damages later, fulfilling your obligations as described in MCL § 554.603 regarding providing a detailed move-in checklist.
Landlord Tip: If you're looking to streamline your security deposit management process, consider using property management software. Landlord Studio offers electronic payments that are fast and secure with minimal fees. Plus, all transactions made through Landlord Studio are recorded for future reference. Should you need to make deductions from the deposit at the end of the lease, you can easily balance your accounts by keeping everything in one place.
In Michigan, landlords can only deduct from a security deposit after the lease ends (or is terminated), unless a cash or surety bond covers it. According to MCL § 554.607, deductions must be itemized in a written notice sent to the tenant within 30 days of the lease ending.
The security deposit can only cover specific costs:
According to Michigan security deposit law, landlords must return a security deposit within 30 days after a tenant moves out. However, if deductions are made to cover damages or unpaid rent, the landlord must provide the tenant with a written notice of damages.
This notice needs to include an itemized list of deductions, detailing the reasons for each charge and their actual or estimated costs. The remaining balance of the security deposit must be returned along with this itemized statement, in the form of a money order or check.
Michigan law requires landlords to include a specific statement in the notice of damages:
“You must respond to this notice by mail within seven days after receipt of the same; otherwise, you will forfeit the amount claimed for damages.”
This statement must be in bold and in a 12-point font that is a minimum of four points larger than the remaining text as required by the MCL § 554.609.
According to Michigan security deposit laws, if a landlord fails to return the security deposit or provide the required notice of damages within 30 days, and does not initiate a court case within 45 days of the tenant moving out, the tenant may sue for double the amount of the original security deposit.
This is applicable if the tenant has complied with the law, including providing a forwarding address as per the initial notice from the landlord.
There are certain specifications provided under Michigan security deposit law that dictate how landlords must manage security deposits. According to Michigan law, landlords have two options for holding security deposits.
Firstly, they can keep the funds in a regulated financial institution, such as a bank or credit union, using the funds only for legally authorized purposes as outlined in MCL § 554.601.
Alternatively, landlords can secure a Landlord Tenant Security Deposit Bond and comply with the Security Deposits Annual Certification requirements with the Department of Attorney General if they intend to use the money for other purposes.
The Attorney General will accept a surety bond from a registered surety business in Michigan to hold deposits up to $50,000, and can also secure 25% of any amount exceeding $50,000.
Useful Resource: How to File Your Security Deposit Bond For the First Time
Generally, security deposits aren't considered income by the IRS because they are meant to be returned to the tenant. However, situations arise where you, as a landlord, must report them as taxable income.
Understanding these scenarios is crucial for compliance with IRS guidelines. Here’s when you may need to include security deposits in your tax filings:
For landlords, key considerations during Michigan security deposit include understanding maximum allowable amounts, the critical role of detailed move-in inspections, and the legal obligation to return deposits promptly—typically within 30 days.
Compliance with these regulations is essential to protect your rights and ensure you uphold tenant protections.
However, if you don't want to worry about the ever-changing security deposit and tax laws, using a property management tool like Landlord Studio can make managing security deposits much more efficient. These tools can help streamline accounting processes and ensure compliance with financial regulations.
For more in-depth information on rental-related laws in your jurisdiction, read our article "Michigan Landlord-Tenant Laws.” Additionally, connecting with local housing authorities or seeking counsel from legal professionals can provide valuable insights and ensure you remain up-to-date with the latest legal requirements.
