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How are security deposits used?

When you rent an apartment or house, you'll need to provide the landlord with a security deposit. This is usually for an amount equivalent to one or two months' rent, and you may not be able to take up residency until the checks for the security deposit and first rent payments have cleared.

In many places there are legal regulations that limit the amount of security deposits. Legally, a security deposit is considered a loan from the renter to the landlord. In some countries and some U.S. states, the deposit must be kept in a separate bank account [source: Nolo]. In other places, it is enough to give an undated check that will only be cashed in the event that it is needed. The "loan" must be repaid to the renter (some places even require that interest be added to it) when the contract expires, except under certain circumstances spelled out in the contract.

Usually, lease agreements state that the security deposit will be used by the landlord in the event that there is damage to the property beyond what can be expected from normal use. The money will cover the cost of repairs or cleaning required to return the property to its expected state.[source: California DCA]. This is the area of rental contracts that is most open to interpretation and therefore to disagreement. What exactly does "normal wear and tear" entail? Just what is "normal use"? It may be obvious when furniture that was in good condition is broken, when the children have scribbled all over the walls in indelible markers, or if the tenant has ruined the oven while running an illegal bakery out of the kitchen. However, if the furniture was old and shaky to begin with, if there are a few dirty handprints around the door frames, or the gas burners on the stove suddenly refuse to light, then it might not be so clear. While there is always some room for differences of opinion, a detailed contract is the best way to limit disputes of this type.