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Why tenant security deposits are a minefield for Florida landlords by Charles P. Castellon, Esq.

All Florida landlords should read and understand the state’s landlord-tenant laws found in Chapter 83 of the Florida Statutes.  A part of the law that contains pitfalls and has historically caused problems for investors is 83.49.  This subsection covers tenant security deposits and the rules governing how landlords may hold and refund deposits following the tenancy.  The law contains strict procedural rules to follow, including specific notice language landlords must use to inform tenants of their legal rights regarding deposits.

These legal waters are dangerous to navigate because violations will trigger attorneys’ fees for the winning party in litigation as well as forfeiture of the deposit.  Many savvy tenants and their attorneys have effectively exploited technical violations to their advantage, which can be costly for landlords.

Additionally, investors renting their properties through the popular federal “Section 8” subsidy program administered by the Department of Housing and Urban Development (HUD) should be aware of some differences in the rules governing deposits from what the State of Florida requires.  This article shall discuss these legal issues to give investors the knowledge to comply with the law and avoid the liability and stress resulting from deposit disputes.

Section 83 of the Florida Statutes covers all aspects of landlord-tenant law.  A good place for investors to start understanding the law is Subsection, 83.49-“Deposit money or advance rent; duty of landlord and tenant.”  83.49 (1) and (2) set forth how landlords shall hold deposits  as well as required  notice language they must give tenants.

Landlords may hold their tenant’s deposits in interest-bearing or non-interest bearing accounts.  It is illegal to co-mingle tenant deposit money with other funds of the Landlord.   If held in an interest-bearing account, the tenant is entitled to receive “at least 75% of the annualized average yearly interest rate…or 5% per year, simple interest, whichever the landlord elects.”

Alternatively, the landlord may post a surety bond to secure deposits, as described in 83.49(c).  This bond is posted with the clerk of the circuit court for the county where the property is located.  Choosing this option will trigger payment of 5% simple annual interest to the tenant.  Different rules apply to landlords owning rental properties in five or more counties, including the right to post a bond with the Secretary of State instead of the clerk of court for each county.

Section 83.49(2) requires landlords to give tenants a specific legal notice concerning their deposit rights.  This part of the law does not apply to landlords renting fewer than five individual dwelling units.  Landlords may choose to include this language in the lease or deliver it within 30 days of receipt of the deposit.  The best practice is to include this language, exactly as written in the statute, in all residential leases.

The handling of security deposits is likely the most common landlord-tenant legal dispute.  This is a very dangerous area  because of the strict legal procedural requirements and attorney fees provision allowing the winning party in a lawsuit to collect the fees and costs of the case.  Many attorneys will pursue deposit cases without requiring advance fees from the likely economically-challenged tenant because a winning case will lead to the landlord paying the tenant’s attorney.  The “reasonable” attorney fees a court may award the winning party often far exceed the amount of the deposit at issue.

Section 83.49 states that, if upon the end of the tenancy, the landlord has no claim for any part of the deposit, the landlord must return the money to the tenant within fifteen days of moving out.  If the landlord intends to make a claim on the money, they have thirty days to deliver written notice by certified mail to the tenant’s last known address.  This written notice must include specific language found in the statute.  The landlord shall give the tenant fifteen days to object in writing to the claim on the deposit.  Tenants commonly file legal actions for defective notice based on grounds such as untimely delivery or failure to state the required statutory language.

A more obscure provision of the law states that these deposit requirements don’t apply where the deposit “is regulated by …federally administered or regulated housing programs or [Section] 8 of the National Housing Act…”  Florida Statute 83.49(4).  Considering the popularity of the HUD Section 8 subsidy program, many landlords should be familiar with this exception to the state law.

The Code of Federal Regulations, Title 24, Chapter VIII, Part 891.435 (cited as 24 CFR 891.435) describes federal requirements .  These federal regulations refer back to applicable state or local laws for certain matters.  The federal rules contain some minor differences from the state law, but allow for state statutory provisions to apply in certain circumstances.  Under the federal regulations, the landlord may use the security deposit to cover unpaid rent.

The federal rules require that within thirty days of the tenant’s notification of a new mailing address, the landlord must refund the deposit or provide an itemized list of amounts owed.  In addition, the landlord is required to give the tenant a statement of rights under state law.  This requirement would have the landlord recite the 83.49 deposit rights language referred to above.  If the amount owed the landlord is less than the deposit, the landlord must refund the balance.  If the landlord fails to provide an itemized list of damages, the tenant is entitled to receive the full deposit.

The tenant may present objections to the landlord in an “informal meeting.”  The landlord must keep a record of the tenant’s objections at that meeting for inspection by HUD.  If the parties are unable to resolve the dispute, the tenant may pursue relief under the terms of the state law, 83.49.  If the retained deposit is less than the amount owed, the landlord may apply for HUD reimbursement for the difference.   The landlord may collect the lesser of the balance owed or one month’s rent minus the security deposit balance.

The main take-away for Florida landlords is that the law on tenant deposits is a minefield of legal liability and exposure that must be thoroughly understood.  Section 8 landlords should also be aware of some nuances differing from the applicable state law, though there is some overlap allowing for both state and federal law to apply to deposit issues.  Understanding and following all these rules at the start of a landlord-tenant agreement will greatly reduce the landlord’s exposure and allow buy and hold investors to focus on making money.