R.C. 5321.16 and its role in setting a security deposit.
Security deposits serve several important roles for landlords. First, it ensures that you have access to funds if a tenant breaks the lease or damages the property. Second, it incentivizes a tenant to return the property in the same condition he or she received it in (minus normal wear and tear). Finally, it is a good initial check on the financial situation of your new tenants to make sure they have the proper income to afford the requested rent.
One important consideration to keep in mind when setting your security deposit is R.C. 5321.16. This section provides that if you charge a security deposit in excess of 1 month’s rent you will have to pay your tenants interest on that deposit at 5% per annum if they stay longer than 6 months. Which means if rent is $900 per month and the security deposit if $1000.00, you are going to find yourself cutting your tenants a $50 check each year.
This will get especially scary when it comes time to return the security deposit. If you fail to account for this interest the tenant may be able to sue you for double the amount withheld and require you to pay his attorney’s fees. (See R.C.5321.16(C)).
While there is nothing stopping you from charging a tenant whatever you would like for a security deposit, when you make the decision to go above 1 month’s rent, it is important that you consider the requirements of R.C.5321.16(A).