Residential Security Deposits (Michigan)

By Matthew A. Quick A Landlord may require a security deposit for each unit the Landlord leases, which shall not exceed one and one-half the rent of each month. MCL 554.602. A security deposit is a deposit paid by the Tenant to the Landlord to be held for any term of the lease agreement, and includes any required prepayment of rent other than the first full rental period of the lease agreement; any 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 condition as required by the rental agreement. A security deposit does not include either of the following: (i) An amount paid for an option to purchase, pursuant to a lease with option to purchase; (ii) An amount paid as a subscription for or purchase of a membership in a cooperative housing association incorporated under the laws of the State of Michigan. A “cooperative housing association” means a consumer cooperative that provides dwelling units to its members. MCL 554.601.

A Landlord may only require a security deposit if the Landlord notifies the Tenant in writing, no later than fourteen (14) days from the date a Tenant assumes possession of the premises, of the Landlord's name and address for receipt of communications, the name and address of the financial institution or surety holding or securing the security deposit and the Tenant's obligation to provide in writing a forwarding mailing address to the Landlord within four (4) days after termination of occupancy. This notice shall include the following statement in 12-point boldface type which is at least 4-points larger than the body of the notice or lease agreement: “You must notify your landlord in writing within 4 days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure.” Failure to provide notice of this information relieves the Tenant of his obligation to notify the Landlord of the Tenant’s forwarding mailing address. MCL 554.603.

Once accepted by the Landlord, the security deposit shall be deposited in a regulated financial institution. The security deposit is considered the lawful property of the Tenant until the Landlord establishes a right to the deposit, or portions thereof, or secures a bond. MCL 554.605. The Landlord may use the deposit for any purpose if the Landlord deposits with the Secretary of State a cash bond or surety bond written by a surety company licensed to do business in this state and acceptable to the Attorney General to secure the entire deposits up to $50,000.00 and 25% of any amount exceeding $50,000.00. The Attorney General may find a bond unacceptable based only upon reasonable criteria relating to the sufficiency of the bond, and shall notify the Landlord in writing of his reasons for the unacceptability of the bond. MCL 554.604.

A security deposit may only be used to secure the following: (i) Reimburse the Landlord for actual damages to the rental unit or any ancillary facility that are the direct result of conduct not reasonably expected in the normal course of habitation of a dwelling; (ii) Pay the Landlord for all rent in arrearage under the lease agreement, rent due for premature termination of the lease agreement by the Tenant and for utility bills not paid by the Tenant. MCL 554.607.

When a security deposit is required, the Landlord must make use of inventory checklists both at the commencement and termination of occupancy for each rental unit. These checklists detail the condition of the rental unit. At the commencement of the lease, the Landlord must furnish the Tenant two (2) blank copies of a commencement inventory checklist, which must be in the same form used for the termination inventory checklist. The checklist shall include all items in the rental unit owned by the Landlord including, but not limited to, carpeting, draperies, appliances, windows, furniture, walls, closets, shelves, paint, doors, plumbing fixtures and electrical fixtures. Unless the Landlord and Tenant agree to complete their inventory checklist within a shorter period, the Tenant shall review the checklist, note the condition of the property and return one (1) copy of the checklist to the Landlord within seven (7) days after receiving possession of the premises. The checklist must contain the following notice in 12-point boldface type at the top of the first page: “You should complete this checklist, noting the condition of the rental property, and return it to the Landlord within 7 days after obtaining possession of the rental unit. You are also entitled to request and receive a copy of the last termination inventory checklist which shows what claims were chargeable to the last prior tenants.” At the termination of the occupancy, the Landlord should complete a termination inventory checklist listing all the damages the Landlord claims were caused by the Tenant. MCL 554.608.

In case of damage to the rental unit or other obligation against the security deposit, the Landlord must mail to the Tenant, within thirty (30) days after the termination of occupancy, an itemized list of damages claimed for which the security deposit may be used, including the estimated cost of repair of each property damaged item and the amounts and bases on which he intends to assess the Tenant. The list shall be accompanied by a check or money order for the difference between the damages claimed and the amount of the security deposit held by the Landlord and must not include any damages that were claimed on a previous termination inventory checklist prior to the Tenant's occupancy of the rental unit. The notice of damages shall include the following statement in 12-point boldface type which shall be at least 4-points larger than the body of the notice: “You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages.” MCL 554.609. Failure by the Landlord to comply with the notice of damages requirement within the thirty (30) days after the termination of occupancy, constitutes agreement by the Landlord that no damages are due and the Landlord shall remit to the Tenant the full security deposit, immediately. MCL 554.610.

The Tenant shall notify the Landlord in writing within four (4) days after termination of the Tenant’s occupancy of an address at which communications may be received. Failure to comply with this requirement relieves the Landlord of the requirement of notice of damages but does not prejudice a Tenant's subsequent claim for the security deposit. MCL 554.611.

If a Landlord claims damages to a rental unit and gives notice of damages as required, the Tenant upon receipt of the list of damages shall respond by ordinary mail to the address provided by the Landlord within seven (7) days, indicating in detail the Tenant’s agreement or disagreement to the damage charges listed. For these purposes, the date of mailing shall be considered the date of the Tenant's response. MCL 554.612.

Within forty-five (45) days after termination of the occupancy, the Landlord may commence an action for a money judgment for damages which the Landlord has claimed or, in lieu thereof, return the balance of the security deposit held by the Landlord to the Tenant or any amount mutually agreed upon in writing by the parties. A Landlord shall not be entitled to retain any portion of a security deposit for damages claimed unless he has first obtained a money judgment for the disputed amount or filed with the Court satisfactory proof of an inability to obtain service on the Tenant or unless: (i) The Tenant has failed to provide a forwarding address; (ii) The Tenant has failed to respond to the notice of damages; (iii) The parties have agreed in writing to the disposition of the balance of the deposit claimed by the Landlord; (iv) The amount claimed is entirely based upon accrued and unpaid rent equal to the actual rent for any full rental period or portion thereof during which the Tenant has had actual or constructive possession of the premises. If the Landlord fails to comply with all legal requirements of receiving a security deposit, the Landlord could be liable to the Tenant for double the amount of the security deposit retained. MCL 554.613.

Upon termination of a Landlord's interest in a rental unit whether by sale, assignment, death, appointment of receiver or otherwise, the Landlord or his agent is liable with respect to the security deposit, until the occurrence of any of the following: (i) Transfer of the deposit to the Landlord's successor in interest and written notification to the Tenant by ordinary mail of the transfer and of the successor's name and address; or (ii) Return of the security deposit to the Tenant. MCL 554.614.