Tenant Exit: Security Deposits

Most landlords require their tenants to pay a security deposit—a sum of money that the landlord can raid if the tenant defaults on the rent, leaves the unit untidy, or damages any property during the course of the tenancy. State law mandates that if the tenant has compiled with all terms of the lease and kept the unit in good order, the landlord must return the security deposit (generally within 30 or 60 days). If the tenant causes damage, the landlord has the right to use the security to restore the unit to its previous condition, but must provide the tenant with a list of damages and receipts for the repairs. 

Although the law of security deposits is generally crystal-clear, a huge number of renters report that they have unfairly lost deposit money to their landlords. Why is this so? Game theorists argue that the structure of the landlord-tenant relationship makes disputes over security deposits almost unavoidable. The key insight is that while the tenancy is ongoing, landlords and tenants have incentives to get along and make compromises—the landlord wants the tenant to make timely rent payments and the tenant wants the landlord to respond quickly when problems arise. However, once the landlord and tenant decide to end their relationship, there are few checks to prevent bad behavior. If the landlord will never interact with the tenant again, why not fudge a little bit with security deposit? Additionally, the small amounts of money involved security deposit disputes mean that it’s rarely worth hiring a lawyer or taking the time to sue the landlord in small claims court.