Connecticut Laws Governing a Residential Security Deposit

Connecticut Laws Governing a Residential Security Deposit

Security deposits - money with a key on a house ring

Landlords in Connecticut need to be aware there are several laws governing how a landlord in Connecticut should hold and use a security deposit. These laws apply strict rules that landlords need to follow or the penalty can be severe.  In some instances, a landlord may be held liable for double the security deposit, or even more under CUTPA.  An abridged synopsis of the relevant statute, Connecticut General Statute §47a-21 is below this article.

Landlords are required by law to segregate a security deposit in a separate bank account.  That account may contain other security deposits; however, it may not be used for the landlord’s operating expenses or any other expenses.  The Landlord may not simply use the money for themselves or the use of their property with the intent that at the end of the lease, they will come up with the same amount of money to pay back to the tenant.  Many landlords don’t see the harm in doing this, however, if you get into a dispute with your tenant at the end of their tenancy, the fact that the security deposit wasn’t properly escrowed can be used against a Landlord to disable or offset otherwise legitimate claims for damages or unpaid rents.

Landlords are also required to provide interest on security deposits pursuant to subsection (i) of the statute. Failure to do so can make landlord liable for double the interest and can be evidence of the Landlord dealing with the Tenant in “bad faith”. Calculating the interest can be complicated, especially where a deposit has been held over many years and it’s been adjusted for increases in rent.

The law requires landlords to return the security deposit in full or in part with a written detailed itemization of the reasons why monies have been deducted from the security deposit within thirty days of the tenant vacating the property or within fifteen days of receiving notice form the tenant of their forwarding address, whichever is later.  Failure to do so will make the Landlord liable for double the full amount of the security deposit.  In cases where the Landlord has deducted all or part of the security deposit, the Tenant is entitled to a detailed itemization that explains the deductions and provides supporting documentation for the deductions. The Courts have been clear that returning a portion of the deposit with insufficient documentation for the deductions can make a Landlord liable for double the entire deposit.  Including receipts is a wise idea.

Many Landlords are surprised to learn that the law does not allow them to deduct for “Ordinary Wear and Tear” and that the Courts have interpreted this term very broadly.  Scratches on a hardwood floor by a doorway, worn carpet, peeling paint and torn screens can all be seen as just ordinary wear and tear for which a Landlord cannot penalize a Tenant.  Any such deductions need to truly be out of the ordinary, such as damage done to hardwood floors by careless movers or damage done to carpet by unauthorized pets.  Many Landlords will try and charge a Tenant for painting the premises after many years in possession. This is only acceptable to cover up unauthorized painting by the Tenant or as a result of truly extraordinary damage.  Landlords cannot justify deducting painting expenses for hand prints, authorized smoking or merely because the Tenant was in possession for a very long time.

There is some confusion regarding whether or not a Landlord may apply a security deposit to unpaid rent at the end of the lease. The caselaw is not clear on this and the general thought is that the language of the lease regarding the security deposit should govern.

Connecticut Courts have found that Landlords can be held liable under the Connecticut Unfair Trade Practices Act (CUTPA), where they have acted deceptively, fraudulently. or in violation of public policy.   A Landlord who doesn’t escrow the security deposit and then improperly accounts for the deposit or attempts to withhold a portion of the deposit they have no right to withhold, could be found liable under CUTPA.  The penalties for violating CUTPA are severe. A Landlord who does so can be found liable for three times the Tenant’s damages plus the Tenant’s attorney’s fees. So even if the lease doesn’t allow for attorney’s fees, a Tenant may still recover as much if they are successful with their CUTPA claim.

All the more reason it’s important for Landlords to know the rules regarding security deposits and make sure they comply with them.

Have other questions? Call us at 203-254-7579.

 

Nothing in this post is intended to take the place of legal advice obtained from a lawyer. This is merely brief introduction to a very complex body of law.  There are many topics a landlord must be aware of that are not addressed here.  Please do not rely solely on the advice in this post or the following summary of the law, both are for reference purposes only.

 

SECURITY DEPOSIT STATUTE AND RELEVANT SUBSECTIONS (abridged):

Conn. Gen. Stat. §47a-21

Subsec. (b) Amount of security deposit. (1) In the case of a tenant under sixty-two years of age, a landlord shall not demand a security deposit in an amount that exceeds two months’ rent.

(2) In the case of a tenant sixty-two years of age or older, a landlord shall not demand a security deposit in an amount that exceeds one month’s rent.

(d) Payment of security deposit and interest at termination of tenancy. (1) Not later than the time specified in subdivision (2) of this subsection, the person who is the landlord at the time a tenancy is terminated, other than a rent receiver, shall pay to the tenant or former tenant: (A) The amount of any security deposit that was deposited by the tenant with the person who was landlord at the time such security deposit was deposited less the value of any damages that any person who was a landlord of such premises at any time during the tenancy of such tenant has suffered as a result of such tenant’s failure to comply with such tenant’s obligations; and (B) any accrued interest. If the landlord at the time of termination of a tenancy is a rent receiver, such rent receiver shall return security deposits in accordance with the provisions of subdivision (3) of this subsection.

(2) Upon termination of a tenancy, any tenant may notify the landlord in writing of such tenant’s forwarding address. Not later than thirty days after termination of a tenancy or fifteen days after receiving written notification of such tenant’s forwarding address, whichever is later, each landlord other than a rent receiver shall deliver to the tenant or former tenant at such forwarding address either (A) the full amount of the security deposit paid by such tenant plus accrued interest, or (B) the balance of such security deposit and accrued interest after deduction for any damages suffered by such landlord by reason of such tenant’s failure to comply with such tenant’s obligations, together with a written statement itemizing the nature and amount of such damages. Any landlord who violates any provision of this subsection shall be liable for twice the amount of any security deposit paid by such tenant, except that, if the only violation is the failure to deliver the accrued interest, such landlord shall be liable for ten dollars or twice the amount of the accrued interest, whichever is greater.

(3) (A) Any receiver who is authorized by a court to return security deposits and to inspect the premises of any tenant shall pay security deposits and accrued interest in accordance with the provisions of subdivisions (1) and (2) of this subsection from the operating income of such receivership to the extent that any such payments exceed the amount in any escrow accounts for such tenants. (B) Any rent receiver shall present any claim by any tenant for return of a security deposit to the court which authorized the rent receiver. Such court shall determine the validity of any such claim and shall direct such rent receiver to pay from the escrow account or from the operating income of such property the amount due such tenant as determined by such court.

(h) Escrow Deposit. (1) Each landlord shall immediately deposit the entire amount of any security deposit received by such landlord from each tenant into one or more escrow accounts established or maintained in a financial institution for the benefit of each tenant. Each landlord shall maintain each such account as escrow agent and shall not withdraw funds from such account except as provided in subdivision (2) of this subsection.

(2) The escrow agent may withdraw funds from an escrow account to: (A) Disburse the amount of any security deposit and accrued interest due to a tenant pursuant to subsection (d) of this section; (B) disburse interest to a tenant pursuant to subsection (i) of this section; (C) make a transfer of the entire amount of certain security deposits pursuant to subdivision (3) of this subsection; (D) retain interest credited to the account in excess of the amount of interest payable to the tenant under subsection (i) of this section; (E) retain all or any part of a security deposit and accrued interest after termination of tenancy equal to the damages suffered by the landlord by reason of the tenant’s failure to comply with such tenant’s obligations; (F) disburse all or any part of the security deposit to a tenant at any time during tenancy; or (G) transfer such funds to another financial institution or escrow account, provided such funds remain continuously in an escrow account.

(3) (A) Whenever any real estate is voluntarily or involuntarily transferred from a landlord, other than a receiver, to a successor, including a receiver, such landlord shall withdraw from the escrow account and deliver to the successor the entire amount of security deposits paid by tenants of the property being transferred, plus any interest accrued pursuant to subsection (i) of this section. If at the time of transfer of such real estate the funds in such account are commingled with security deposits paid by tenants in real estate not being transferred to such successor, and if at such time the funds in such account are less than the amount of security deposits paid by all tenants whose security deposits are contained in such account, such landlord shall deliver to such successor a pro rata share of security deposits paid by tenants of the real estate being transferred to such successor. (B) Whenever any real estate is transferred from a receiver to a successor, such receiver shall dispose of the escrow accounts as ordered by the court which appointed such receiver. The order of such court shall provide for the priority of the present and future rights of tenants to security deposits paid by them over the rights of any secured or unsecured creditor of any person and shall provide that the funds in such account shall be delivered to the successor of such receiver for immediate deposit in an escrow account for tenants who paid security deposits.

(i) Payment of interest on security deposits. On and after July 1, 1993, each landlord other than a landlord of a residential unit in any building owned or controlled by any educational institution and used by such institution for the purpose of housing students of such institution and their families, and each landlord or owner of a mobile manufactured home or of a mobile manufactured home space or lot or park, as such terms are defined in subdivisions (1), (2) and (3) of section 21-64, shall pay interest on each security deposit received by such landlord at a rate of not less than the average rate paid, as of December 30, 1992, on savings deposits by insured commercial banks as published in the Federal Reserve Board Bulletin rounded to the nearest one-tenth of one percentage point, except in no event shall the rate be less than one and one-half per cent. On and after January 1, 1994, the rate for each calendar year shall be not less than the deposit index, determined under this section as it was in effect during such year. On and after January 1, 2012, the rate for each calendar year shall be not less than the deposit index, as defined in section 36a-26, for that year. On the anniversary date of the tenancy and annually thereafter, such interest shall be paid to the tenant or resident or credited toward the next rental payment due from the tenant or resident, as the landlord or owner shall determine. If the tenancy is terminated before the anniversary date of such tenancy, or if the landlord or owner returns all or part of a security deposit prior to termination of the tenancy, the landlord or owner shall pay the accrued interest to the tenant or resident not later than thirty days after such termination or return. Interest shall not be paid to a tenant for any month in which the tenant has been delinquent for more than ten days in the payment of any monthly rent, unless the landlord imposes a late charge for such delinquency. No landlord shall increase the rent due from a tenant because of the requirement that the landlord pay on interest the security deposit.