Understanding all aspects of Tennesse landlord-tenant law is important for a landlord or a property owner. Collecting a security deposit is probably one of the first times you’ll need to understand legal requirements during the leasing process. 

From permissible deductions to timely returns, this blog post will cover the specifics of Tennessee’s security deposit laws, ensuring you’re well-equipped with the knowledge needed to protect your rights and manage your residential property responsibly. 

Why Collect a Security Deposit

For landlords in Tennessee, collecting security deposits from tenants provides a sense of protection. Here are some of the reasons why you should collect a deposit:

• To protect your investment against damages: Security deposits act as a financial buffer for landlords and can cover costs related to damage beyond normal wear and tear. This includes significant repairs, replacement of damaged items, and cleaning of excessive stains or dirt left by tenants.
• To provide coverage for unpaid rent: The deposit can be used to offset unpaid rent, unpaid utility bills, and late rent fees, helping landlords avoid financial losses due to tenant default. A landlord’s estimated costs are deducted from the deposit.
• To cover for damages due to a breach of lease or rental agreement: If tenants break their lease early or if they violate the lease terms and cause damage, the deposit can be used to cover the cost of damage or income loss.
• To encourage tenant responsibility: Knowing that their deposit is at stake, tenants are more likely to maintain the rental property well, reducing the need for extensive repairs or cleaning after their tenancy ends and increasing rental income.
• For legal protection: Collecting a security deposit is backed by Tennessee law, providing a legal framework for landlords to make deductions for damages or unpaid dues, thereby reducing potential disputes with tenants and providing records if you want to pursue legal action.

Guide to the Security Deposit Laws in Tennessee

1. Tennessee Security Deposit Limit

While some states only allow landlords to charge security deposits of up to a month or two months’ worth of rent, Tennessee does not impose a legal limit on the maximum security deposit a landlord can charge. However, the charges must be reasonable. 

Landlords are entitled to seek additional security deposits for pets. However, if the pets are service dogs or emotional support animals for persons with disability, they won’t be allowed to ask tenants to pay for an additional deposit.

2. Nonrefundable Fees

Nonrefundable fees are optional disclosures as per Tennessee landlord-tenant law. However, if the landlord decides to charge a nonrefundable fee, the fee should be included in the lease agreement and the tenant must agree to it. Otherwise, the tenant may be entitled to a refund if these nonrefundable charges are not properly disclosed.

Some of these fees can be a pet deposit. A pet deposit helps protect your rental from any pet-related damages and can protect tenants and landlords alike.

3. Storing a Tenant’s Deposit in Tennessee

Landlords in Tennessee are required to deposit tenants’ security deposits in an account used solely for that purpose. This account should be in a bank or other financial institution subject to federal regulations. The landlord must also notify the tenants of the location where the funds are held.

Moreover, the deposit should be separate from the landlord’s personal funds. However, while it is required to keep the security deposit funds in a deposit account, the law does not mandate landlords to provide interest on held security deposits. Rent payments and other funds related to the lease agreement should also be kept separate to avoid any confusion.

The law requires landlords to provide proper notice if they intend to use the deposit to cover damages or unpaid amounts. Additionally, tenants should be given a notice specifying the charges before any deductions are made. If the tenant does not pay the outstanding amounts, the deposit may be used to cover these costs.

4. Written Notice after Security Deposit Receipt

In Tennessee landlord-tenant laws, landlords are not required to provide a receipt to the tenants after collecting the security deposits. However, landlords are required to disclose where the security deposits are being held. If a landlord fails to do this, the tenant has a right to protest.

5. Reasons to Withhold a Tenant’s Security Deposit in Tennessee

Landlords can withhold a renter’s security deposit for various reasons, including unpaid rent, utilities, late fees, damages beyond normal wear and tear, and damages caused by a breach of the lease agreement or rental agreement on the tenant’s behalf.

Damages beyond normal wear and tear include heavily stained carpets, broken windows, holes in walls, and missing fixtures under the security deposit laws in Tennessee. Charges for painting and cleaning can also be made if the tenant causes damage beyond normal wear and tear.

This is why it’s important to keep an inspection report. An inspection report will make it easier to prove the damages are due to the tenant and not normal wear and tear.

6. A Walk-Through Inspection

Landlords must give tenants an opportunity to attend a final walk-through inspection. The landlord must send a written notice to the tenant within five days after receiving the tenant’s intent to vacate. It is also possible that a tenant requests an inspection through written notice before the tenant leaves the rental property.

If a tenant requests it, the inspection must be scheduled during normal business hours and occur within four days after the tenant vacated the rental property. The tenant and landlord must create a list of damages, if any, during this inspection. The tenant can then sign the list. If the tenant refuses to sign the itemized list, you may need to get legal guidance before the tenant leaves.

Following the inspection, landlords have the option to deduct further for any damages identified either within 30 days after the tenant leaves the property, or within seven days of when a new tenant takes possession of the unit, whichever comes first.

A tenant forfeits their privilege to be present at the final inspection if they either leave or abandon the property without providing written notification, neglect to inform the landlord about their inspection rights, miss the inspection at the arranged time, or are being evicted.

7. Deposit Refund in Tennessee

Tennessee security deposit law does not have a specific deadline for returning a deposit. However, landlords must return it within a reasonable time, along with a written notice of any deductions such as to pay rent missed by the tenant. If deductions are made, the withheld portion of the deposit must remain in its holding account for 60 days before the landlord can claim it, even for things like unpaid rent.

8. Change in Ownership of the Property

In the case of a change in ownership of the property, the responsibility for the renter’s security deposit transfers to the new owner. Under Tennessee landlord-tenant laws, the new owner assumes all obligations and rights concerning the deposit.

It’s important to notify the tenants in writing regarding the change of ownership. The name and contact information of the new landlord or their authorized representative should also be disclosed to the tenants, allowing for proper communication as required by landlord-tenant laws.

Security Deposit Laws in Tennessee: In Conclusion

Understanding and adhering to Tennessee law is crucial for both landlords and tenants. Landlords benefit from the financial protection it offers, while tenants must be aware of their rights and responsibilities to ensure the return of their deposit. By clearly understanding these landlord-tenant laws, both parties can contribute to a more straightforward and smoother rental experience.

If you’re looking for expert advice on security deposit laws, landlord-tenant laws, or any other aspect of owning a property in the Memphis area, contact us at Specialized Property Management Memphis. We have decades of experience in the property management business and are here to make being a landlord in Tennessee easier than ever. 

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.