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Legally speaking: What does Ohio law say about collecting and maintaining security deposits?

By Lorie Garland, Assistant Vice President of Legal Services

The OAR Legal Assistance Hotline receives an array of real estate-related legal questions — including license law issues, disclosure, contract law, ethics and commission problems, among others. In an effort to help you work within the law, our “Legally Speaking” series spotlights some of the timely questions that are being asked by REALTORS. The following examines questions regarding security deposits… 

Q: My brokerage manages residential rental properties. Our policy is to collect a tenant security deposit equal to one month’s rent. The security deposit is held in our brokerage’s property management trust account. An owner recently approached me about managing his apartment complex. He stated that his current property manager collects a security deposit equal to two month’s rent. Can a tenant security deposit be in an amount greater than one month’s rent?

The property owner also told me that his current property manager does not maintain tenant security deposits in the brokerage property management trust account. Security deposits are deposited in the property management trust account but are then used to pay expenses of the property. Is this legal?

A: A tenant’s security deposit can be in an amount greater than one month’s rent. However, Ohio’s landlord-tenant law (ORC 5321.16(A)) requires interest be paid on any amount in excess of one month’s rent if the tenant remains in possession of the unit for six months or more. The interest rate is 5 percent per annum and must be computed and paid annually by the landlord to the tenant.

Ohio real estate license law (OAC 1301:5-5-11(D)) requires that tenant security deposits be deposited and maintained in the property management trust account unless the lease and property management agreement provide otherwise. If the lease and property management agreement provide that the security deposit will be deposited in the property management trust account but not maintained there, i.e. used to pay property expenses, then the security deposit can be handled in that manner. It is imperative that a property manager discuss with the owner how security deposits will be handled and document that process in the lease and property management agreement.

 

Legal articles provided in the OAR Daily Buzz are intended to provide broad, general information about the law and is not intended to be legal advice. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney. 

Tags: legal, Legally Speaking