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As any property manager knows, deposits are often the most contentious issue with tenants. There is often a basic misunderstanding of the responsibilities of both parties regarding the security deposit. Iowa Code 562A.12 governs the use of deposits for residential housing in Iowa. Below is a breakdown of what all property managers should know about this specific section of Iowa code.

562A.12 Rental deposits.
1. A landlord shall not demand or receive as a security deposit an amount or value in excess of two months' rent.

Self-explanatory, except that it is important to note that in sublease situations, you can have one month's rent as deposit from the original tenant and can also get another month's rent as a deposit from the sublessee.

2. All rental deposits shall be held by the landlord for the tenant, who is a party to the agreement, in a bank or savings and loan association or credit union which is insured by an agency of the federal government. Rental deposits shall not be commingled with the personal funds of the landlord. Notwithstanding the provisions of chapter 543B, all rental deposits may be held in a trust account, which may be a common trust account and which may be an interest bearing account. Any interest earned on a rental deposit during the first five years of a tenancy shall be the property of the landlord.

This is very important. You must separate the deposits from any of your other money. It is a good idea to put the deposit into an interest bearing account as that will help boost your profits. If you have a tenant in the same unit for over five years, they are entitled to the interest on the security deposit.

3. A landlord shall, within thirty days from the date of termination of the tenancy and receipt of the tenant's mailing address or delivery instructions, return the rental deposit to the tenant or furnish to the tenant a written statement showing the specific reason for withholding of the rental deposit or any portion thereof. If the rental deposit or any portion of the rental deposit is withheld for the restoration of the dwelling unit, the statement shall specify the nature of the damages. The landlord may withhold from the rental deposit only such amounts as are reasonably necessary for the following reasons:
a. To remedy a tenant's default in the payment of rent or of other funds due to the landlord pursuant to the rental agreement.
b. To restore the dwelling unit to its condition at the commencement of the tenancy, ordinary wear and tear excepted.
c. To recover expenses incurred in acquiring possession of the premises from a tenant who does not act in good faith in failing to surrender and vacate the premises upon noncompliance with the rental agreement and notification of such noncompliance pursuant to this chapter.
In an action concerning the rental deposit, the burden of proving, by a preponderance of the evidence, the reason for withholding all or any portion of the rental deposit shall be on the landlord.

It is important that the tenants give you their forwarding address/delivery instructions at the time they move out of the rental unit. This section tells you what you can lawfully withhold for from the deposit. Ordinary wear & tear is an often misunderstood concept.

For example, if the tenant has not damaged the walls in any way, but the paint is old enough to need a new coat, you would not be acting in accordance with this section if you withheld money from the deposit for painting. If there is damage to the walls, then you can charge for the amount of painting needed to repair the damage.

The statement of damages you send to the tenant must be as thorough as possible. You should keep track of receipts and proof of the work that had to be done to restore the unit to its condition at the commencement of the tenancy. The best defense is a good offense, if you are sued. By keeping good records, returning the deposit within thirty days and acting in good faith, you will be well-prepared for any legal challenges to your deductions from the security deposit.

4. A landlord who fails to provide a written statement within thirty days of termination of the tenancy and receipt of the tenant's mailing address or delivery instructions shall forfeit all rights to withhold any portion of the rental deposit. If no mailing address or instructions are provided to the landlord within one year from the termination of the tenancy the rental deposit shall revert to the landlord and the tenant will be deemed to have forfeited all rights to the rental deposit.

Bottom line, get the deposit and/or written statement back within the required thirty days. If you do fail to do that, by law, you have forfeited the right to withhold anything from the deposit regardless of what the tenant did to the unit. However, this section only says you forfeit the right to withhold the deposit, you would still have a separate claim for damages and cleaning through the small claims court system.

5. Upon termination of a landlord's interest in the dwelling unit, the landlord or an agent of the landlord shall, within a reasonable time, transfer the rental deposit, or any remainder after any lawful deductions to the landlord's successor in interest and notify the tenant of the transfer and of the transferee's name and address or return the deposit, or any remainder after any lawful deductions to the tenant.
Upon the termination of the landlord's interest in the dwelling unit and compliance with the provisions of this subsection, the landlord shall be relieved of any further liability with respect to the rental deposit.
6. Upon termination of the landlord's interest in the dwelling unit, the landlord's successor in interest shall have all the rights and obligations of the landlord with respect to the rental deposits, except that if the tenant does not object to the stated amount within twenty days after written notice to the tenant of the amount of rental deposit being transferred or assumed, the obligations of the landlord's successor to return the deposit shall be limited to the amount contained in the notice. The notice shall contain a stamped envelope addressed to landlord's successor and may be given by mail or by personal service.

If you do buy or sell a rental unit, these are important sections to follow.

7. The bad faith retention of a deposit by a landlord, or any portion of the rental deposit, in violation of this section shall subject the landlord to punitive damages not to exceed two hundred dollars in addition to actual damages.

Always act in good faith and have patience with your tenants and you can avoid the $200 punitive damages.

8. The court may, in any action on a rental agreement, award reasonable attorney fees to the prevailing party.

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