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Real Property for Indiana Paralegals
Section 10 . 2 . 3

Security Deposits

Jonathan Watson

The question of security deposits merits its own section because of the potential pitfalls for landlords when dealing with them. Security deposits are regulated under Ind. Code § 32-31-3-1, et. seq. This section has its own set of definitions. Most importantly, a security deposit is defined as a “deposit paid by a tenant to the landlord or the landlord's agent to be held for all or a part of the term of the rental agreement to secure performance of any obligation of the tenant under the rental agreement.[1]” The term also includes the following:

[A] required prepayment of rent other than the first full rental payment period of the lease agreement, a sum required to be paid as rent in any rental period in excess of the average rent for the term, and any other amount of money or property returnable to the tenant on condition of return of the rental unit by the tenant in a condition as required by the rental agreement.[2]

However, it does not include any amount paid to hold an option to purchase, or subscriptions or memberships in cooperative housing associations. At the end of a rental agreement, the landlord must return the security deposit minus any amounts applied to accrued rent, damages due to noncompliance with the rental agreement, or utilities. Specifically, the landlord may only apply the retained security deposit to damages not the result of ordinary wear and tear, rent in arrearage, rent due for premature termination of the agreement by the tenant, to pay for the last period of rental if that is part of the lease agreement, or unpaid sewer or utility charges if contractually obligated to the tenant.[3]

Along with the deposit, the landlord must supply a written notice containing itemized charges. All this must occur within 45 days after the landlord retakes possession after the termination of the rental agreement. However, if the tenant does not supply a mailing address to the landlord after the termination, the landlord is not required to follow these requirements. If the landlord fails to follow the chapter, the tenant may recover the security deposit and reasonable attorney’s fees. Moreover, failure to give notice constitutes an agreement that no damages are due and the security deposit must be returned entirely. Finally, this chapter cannot be waived by the landlord or tenant.

[1] Ind. Code § 32-31-3-9.

[2] Ind. Code § 32-31-3-9.

[3] Ind. Code § 32-31-3-13.

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