lease-provisions

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

Author: Kasee Godwin
Date: 11.11.2023

As a property manager in Minnesota, staying well-informed about the latest security deposit laws isn’t just good practice—it’s a cornerstone of your business’s credibility and legal compliance.

This guide breaks down Minnesota’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 Minnesota properties.

Minnesota Security Deposit Laws: Key Points

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

  • Minnesota property managers can charge a maximum security deposit equal to one month’s rent for properties with a monthly rent of less than $500, and charge a deposit equal to one and a half month’s rent for properties with a monthly rent of $500 or more.
  • Landlords may request additional deposits for pets, including for service animals.
  • Property managers in Minnesota are required to pay their residents interest on the security deposit annually.
  • Property managers are required to return a resident’s security deposit (or provide an itemized list of deductions) within 21 days after the resident’s move-out date.

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

New Minnesota Security Deposit Laws in 2024

New laws were made effective in 2024 to provide residents with increased rights and protections. Notable changes include:

1. “Non-optional Fees”

Property managers must disclose all “non-optional fees” on the first page of the lease agreement, ensuring that residents are aware of additional charges they may be responsible for. State legislation does not define what is classified as a “non-optional fee”.

The sum of the rent plus all mandatory fees must be listed as the Total Monthly Payment on the first page. Property managers must be sure to include in the lease whether or not utilities are included in the rent. Any property owner who fails to include this information is liable to the resident for damages and attorney fees.   

2. Required Move-In and Move-Out Inspections

As of January 1, 2024, property managers are required to inspect the property during move-in, at the request of the resident, to identify existing repair needs to avoid unnecessary security deposit deductions at the end of the lease agreement.  

Likewise, if a resident requests a move-out inspection, property managers are also required to conduct a move-out inspection of the property within five days prior to the resident’s move-out date. The resident has a right to be present for either inspection.

3. Terminating or Renewing a Lease

Beginning in 2024, cancellation of a rental agreement by giving 14 days’ notice for failure to make a rent payment is prohibited. Additionally, new Minnesota landlord-tenant law prohibits a property owner from filing an eviction action in court for unpaid rent unless they first provide written notice of intent to file 14 days in advance.

For lease renewals, a property owner may not force a resident to renew their lease agreement more than six months before its end date.

4. Proper Notice of Landlord Entry

Property managers are required to provide residents with 24-hour notice of entry into the rental unit. Entrance is also limited to between 8:00 a.m. and 8:00 p.m.

If the notice is violated, residents can take legal action against the property owner to break their lease, recover their security deposit, and receive up to $500 per violation.

However, property owners may still enter a residence without notice for specific safety-related reasons related to maintenance, building security, law enforcement, or local ordinances.

Security Deposit Alternative Laws in Minnesota

As of 2024, Minnesota law does not require property managers to offer residents security deposit alternatives (SDAs). However, a growing number of states have passed legislation related to SDAs, so property managers need to understand what a security deposit alternative is, and what the benefits to residents are. 

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.

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 Minnesota

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

There is no limit on the amount that property managers can charge for a security deposit in Minnesota. In the case of a month-to-month tenancy, property managers can increase the security deposit amount at any time if they provide the resident with a written statement. The appropriate period of notice is the time frame for the rental period plus one additional day.

Pet Deposit Laws

Property managers may charge an additional pet deposit fee even if the renter’s pet qualifies as a service animal or emotional support animal.

Necessary Disclosures

Prior to a resident moving in, the property manager must give notice if the rental property has any health code violations or pending foreclosure. Failure to disclose a foreclosure before collecting a security deposit could result in the property manager being fined $500 unless the property’s titleholder chooses not to terminate the contract upon foreclosure.

Storing Security Deposits 

Minnesota statutes require property managers to hold security deposits in a trust account in a financial institution—separate from the owner’s property operations accounts. The account should be set up expressly for holding these deposits, safeguarding tenant funds throughout the rental period.

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

Paying Interest on Security Deposits

Property owners in Minnesota are obligated to pay their residents interest on any security deposit that is held for a minimum of one year. The interest rate must be the same as the interest rate on savings accounts in the state of Minnesota. 

In 2024, the rate is currently 1%. For instance, for every $1,000 of the security deposit that the property owner holds onto, they must pay the resident $10 in interest each year of the lease term.

Interest begins on the first day of the month following the full payment of the security deposit. Interest runs until the last day of the month in which the property manager returns the deposit.

Tax Implications of Security Deposits

In the state of Minnesota, 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.

According to the Internal Revenue Service (IRS), here are a few rules that property managers should follow to determine if a security deposit should be reported as taxable income:

  1. If the property manager and resident both agree to use the security deposit as the last month’s rent, it should be reported as income.
  2. If the security deposit was used to cover repairs and other expenses, the property manager should report it as income.
  3. If the property manager holds onto a security deposit due to the resident’s failure to pay rent (or a breach of the lease), the amount kept should be reported as income in the year it was forfeited.

Allowable Deposit Deductibles in Minnesota

Property managers in Minnesota may use an amount of the 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:

  • Nonpayment of rent or charges related to necessary repairs
  • Unpaid utility bills
  • Abandonment of the premises (i.e. the residents moves out of the property before the lease agreement is complete)
  • Damages to the property beyond 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.

What is Considered 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 

Returning Security Deposits in Minnesota

Property managers should understand security deposit laws so that when a tenant moves out, the process of returning their security deposits goes smoothly.

Security Deposit Return Timeline

Minnesota security deposit law requires property managers to return any unused portion of a resident’s security deposit within 21 days, including interest—as long as the resident provides a forwarding address.

If the property manager deducts from the security deposit, they are required to provide an itemized list of the damages via certified mail. The list of deductions must be accompanied by relevant receipts and/or invoices.

However, if the resident is forced to leave the rental property because it is acquired by the government, the property manager must return the security deposit within five days.

Penalties for Not Returning Security Deposits on Time

In Minnesota, if a property manager fails to return a resident’s security deposit or provide the itemized list of deductions within 21 days, residents may sue them in Conciliation Court for up to twice the amount of the security deposit—and an additional $500 for bad faith damages.

Using a Security Deposit as Last Month’s Rent

In Minnesota, a security deposit may not be used as last month’s rent unless the lease is month-to-month and it is agreed upon in the rental agreement.

The Bottom Line on Minnesota’s Security Deposit Laws

Minnesota 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.

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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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