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Delaware Security Deposit Laws: What Property Managers Should Know in 2024

Author: Kasee Godwin
Date: 10.28.2023

Understanding the Delaware security deposit law is crucial for property owners and renters so that both parties can confidently navigate these regulations.

This guide breaks down Delaware’s security deposit laws, including how much you can charge, what you can deduct, and the timeline for returning deposits. We’ll also cover what you need to know about security deposit alternatives—and if they’re required for Delaware properties.

Delaware Security Deposit Laws: Key Points

There are a few key points that property managers in Delaware should know regarding legal compliance related to security deposits they receive from residents:

  • Delaware property managers can charge a maximum security deposit equal to one month’s rent for rental agreements that last one year or more. If a rental agreement is for less than one year, landlords can charge more than one month’s rent.
  • Landlords may charge an additional pet deposit fee that is up to one month’s rent, except for certified support animals.
  • Property managers must return a resident’s security deposit (or provide an itemized list of deductions) within 20 days after the resident’s move-out date.

Read on to take a closer look at Delaware’s security deposit laws.

Security Deposit Alternative Laws in Delaware

Delaware allows property managers to offer residents security deposit alternatives, like surety bonds. However, Delaware law does not require property managers to offer security deposit alternatives. 

A security deposit alternative is an alternative to the traditional cash deposit required by property managers. Rather than asking residents to pay a sizeable upfront sum, alternatives such as surety bonds or installment-based deposit programs allow residents to pay smaller, recurring payments. 

For example, Qira is a financial management platform for property managers that offers a security deposit program. This program allows residents to pay a monthly fee as low as $5 instead of a lump-sum cash deposit, reducing move-in costs. Qira also makes the security deposit collection process easier for property managers.

Though not every state requires property managers to offer residents a security deposit alternative, platforms like Qira offer major benefits to both residents and property managers. Residents get to keep more cash in their pockets, and property managers don’t have to assume any additional risk—Qira handles it for them.

To learn more, check out Qira’s security deposit program here.

Collecting Security Deposits in Delaware

Grasping the intricacies of security deposit collection is not just helpful—it’s crucial. Maneuvering the legal aspects of property management can be tricky, but with a clear strategy, you can secure your properties effectively and comply with state laws.

Maximum Security Deposits

Property managers may not require a security deposit that is greater than one month’s rent for rental agreements that are for one year or longer, or for month-to-month tenancies that last one year or longer.

However, certain situations allow property managers to charge more than one month’s rent as a security deposit:

  1.   If the rental unit is furnished
  2.   If they are renting certain federally-assisted housing
  3.   When the resident’s tenancy is expected to last less than one year.

Pet Deposit Laws

Property managers may charge an additional pet deposit fee, but the amount of the security deposit cannot equate to more than one month’s rent—regardless of the duration of the lease agreement. Residents with service pets aren’t required to pay additional deposits but are responsible for actual damages caused by the service pet.

Application Fees

In addition to the security deposit, Delaware landlord-tenant rental laws allow property managers to charge an application fee of up to $50 or 10 percent of the monthly rent for the rental unit, whichever is greater.

The property manager is obligated to provide the resident with a receipt for the full amount paid as an application fee and to maintain complete records of all application fees charged and received for two years.

Increase in Rent

Delaware landlord-tenant laws require property managers to give residents 60 days’ notice in writing to increase rent or change another term of a month-to-month lease. After the resident has received the landlord’s notice of proposed changes, they have 15 days to terminate the tenancy.

 Otherwise, the changes will go into effect. For long-term leases, a property owner may not increase the rent until the lease agreement has terminated and a new tenancy commences.

Storing Security Deposits 

Delaware statutes require property managers to hold security deposits in an escrow bank account in a federally insured financial institution in Delaware. The deposit should be kept separate from other funds belonging to the landlord.

If the resident requests in writing to know the location of the security deposit amount, the landlord is required to disclose its location within 20 days. If this timeline is not met, the landlord loses the right to hold onto the deposit and must refund double the amount to the renter within 20 days.

Property managers should maintain clear records of the security deposit, including the amount, the date of receipt, and the account where it’s held.

Paying Interest on Security Deposits

Unlike some other states, property owners in Delaware do not owe interest earned from security deposits to residents. 

Tax Implications of Security Deposits

In the state of Delaware, a security deposit is not considered taxable income when it is first received—because it is not immediately considered revenue. This is because the property manager could still need to reimburse the security deposit to the resident. 

The security deposit becomes taxable once the property management company is no longer obligated to return it.

Allowable Deposit Deductibles in Delaware

Property managers in Delaware may deduct a portion of the security deposit (or all of it) if the property suffered damage that was the direct result of abuse or negligence by the resident.

Some reasons why property managers may deduct from a resident’s security deposit include:

  • Unpaid rent 
  • Costs resulting from the early termination of the rental agreement, including renovations or costs related to re-renting the apartment 
  • Costs of repair due to damages to the property (as long as they exceed normal wear and tear)

What is Considered Normal Wear and Tear?

Normal wear and tear is the expected damage or natural deterioration of a rental property that occurs due to everyday use over time. For example:

  • Loose door handles
  • Fading paint
  • Faded hardwood floors
  • Small carpet stains
  • Minor scrapes on flooring or walls.

Excessive Property Damage

Any damage that is considered above and beyond normal wear and tear is commonly referred to as excessive property damage. For example: 

  • Broken windows and light fixtures
  • Large nail holes in the wall
  • Carpet stains or holes
  • Broken locks, door frames, or doors
  • Unauthorized painting or remodeling

If the cost of damages is greater than the security deposit, property managers are allowed to charge more money from the former tenant. Landlords cannot charge for painting or ordinary cleaning.

Returning Security Deposits in Delaware

Property managers should be aware of security deposit laws and communicate with their residents to make sure the process of returning security deposits goes smoothly for everyone.

Security Deposit Return Timeline

Delaware security deposit law requires property managers to return any unused portion of a resident’s security deposit within 20 days to the resident’s forwarding address. If the property manager deducts from the security deposit, they are required to provide an itemized list of the damages.

Tenant rights laws allow renters to object to the amount withheld from their security deposit. Written notice must be provided of the objection within 10 days of receiving the property manager’s itemized list of deductions.

Penalties for Not Returning Security Deposits on Time

A property manager who fails to return a tenant’s security deposit in 20 days may be liable to pay double the amount wrongfully withheld.

Using a Security Deposit as Last Month’s Rent

Delaware statutes allow property managers to choose whether security deposits may be used as the last month’s rent. That policy should be included in the rental agreement.

The Bottom Line on Delaware’s Security Deposit Laws

Delaware property managers must maintain a strong understanding of the state’s security deposit laws. By following these guidelines, property managers can better protect their investments and ensure a fair process for everyone involved.

If you’re a property manager looking to reduce resident move-in costs and simplify the security deposit collection process, Qira can help. Qira’s security deposit program is the only cash-managed system in the industry.

If you’re ready to get started, you can book a demo and learn more about Qira today.

Disclaimer:

Qira aims to keep this information as up-to-date as possible. The content provided here is for informational purposes only and should not replace legal advice. Please refer to the relevant government sources to check for any changes or updates to the law.

kasee-godwin-80x80

Kasee Godwin

Position: Director of Marketing
Social Networks

Kasee is the Director of Marketing for Qira. She has nearly 15 years of experience in the real estate marketing industry, including 10 years on the client side. In her spare time, she enjoys reading science fiction, exploring new wineries, and fostering Golden Retrievers.

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