Moving out of a rented home? Know when landlord can keep your deposit | Personal Finance

You hand over the keys, clear the rent and leave the house. You expect your security deposit back. Instead, the landlord sends you a list of deductions: Repainting, cleaning, ageing fixtures or “maintenance”.

This is where many tenant-landlord disputes begin. But a landlord cannot treat the security deposit as a fund for every expense incurred after a tenant moves out. Whether money can be deducted depends on the rental agreement, the nature of the expense and the law applicable to the property.

A landlord may generally deduct unpaid rent, utility bills that are the tenant’s responsibility and reasonable costs of repairing damage caused by the tenant beyond normal use. But ordinary wear and tear is different from damage.

“A security deposit is not an unrestricted source of recovery for a landlord,” said Madhura Samant, founder, Elarra Law Offices. Any deduction should have a legitimate contractual or legal basis and should be linked to identifiable dues or actual damage attributable to the tenant, she said.

What can a landlord deduct from the deposit?

The distinction is between actual damage and normal wear and tear.

Faded paint, minor scuff marks, ageing fixtures and carpets wearing out over time can generally be considered normal deterioration resulting from ordinary occupation. These are not necessarily costs that can be passed on to the tenant.

“A security deposit is the tenant’s own money, held only as security against proven dues,” said Fazl Askari, senior associate, PSL Advocates & Solicitors. A landlord may deduct unpaid rent, unpaid dues and the actual cost of repairing damage caused by the tenant beyond ordinary use, he said.

Askari cited Section 74 of the Indian Contract Act, 1872. If a rental agreement provides for forfeiture or liquidated damages following a breach, the landlord can claim reasonable compensation, subject to the legal limits applicable to such a clause.

“The rent agreement may also set out an agreed and exhaustive list of expenses where significant repairs or restoration are required that can be deducted from the security deposit,” she said.

Can landlords charge for repainting and routine maintenance?

Not every expense incurred after a tenant leaves can automatically be described as tenant damage.

Routine repainting because of ordinary occupation, minor scuff marks or general ageing of a property may fall under normal wear and tear. Similarly, routine maintenance that is the landlord’s responsibility should not ordinarily be shifted to the tenant.

Rohit Jain, managing partner, Singhania & Co, said the judgement reinforces that expenses attributable to normal wear and tear cannot ordinarily be fastened on the tenant.

“A landlord cannot ordinarily withhold the security deposit merely because the tenancy has ended,” Jain said. Deductions for damage beyond ordinary wear and tear may be permissible where they are supported by evidence and reasonable repair costs, he added.

The rental agreement therefore becomes important. A charge that was never agreed upon and has no clear contractual or legal basis can be challenged.

When should the security deposit be returned?

There is no single refund deadline applicable to every tenancy across India. The first document a tenant should check is the rental agreement.

Under the Model Tenancy Act, 2021, the security deposit is to be refunded when vacant possession is taken over, after deduction of the tenant’s liabilities. The model framework caps the deposit at two months’ rent for residential premises and six months’ rent for non-residential premises. However, it is a model law and does not automatically apply throughout India.

“The governing principle is the contractual arrangement between the parties,” said Samant. Where the agreement specifies a refund period, that provision is particularly relevant. Where it is silent, an unreasonable delay can be formally challenged, she said.

Grahita Agarwal, senior associate, B. Shanker Advocates LLP, said the deposit should ordinarily be refunded within the period specified in the rental agreement after legitimate dues are adjusted. If the agreement does not specify a period, the landlord should return it within a reasonable time after vacant possession and settlement of accounts.

Many rental agreements provide a 15- to 30-day window for reconciliation of utility bills and other dues, although this is not a universal statutory deadline.

What should tenants do before moving out?

A tenant can make a future dispute easier to resolve by creating evidence before handing over the property.

Razvi recommends a joint inspection before vacating and documenting the property’s condition. Tenants should:

Take dated photographs and videos of rooms, walls, fixtures and appliances

Record electricity and water meter readings

Clear outstanding rent and utility bills

Get written acknowledgement of key handover

Keep proof of the security deposit payment

Preserve the rental agreement and inventory list

Keep emails, messages and other communication with the landlord

“The landlord should return the security deposit promptly after the tenant vacates the premises, hands over the keys, and the property is inspected, after making only lawful deductions,” said Alay Razvi, managing partner, Accord Juris.

What if the landlord refuses to refund the money?

The first step should be to ask the landlord in writing for the refund and an itemised statement of deductions. If money has been deducted for repairs, the tenant can ask for supporting bills or other evidence.

“If the landlord refuses to refund the deposit without a valid reason, the tenant should first seek a written, itemised explanation of the deductions along with supporting bills,” Razvi said.

If the landlord does not resolve the matter, the tenant can send a formal legal notice demanding repayment. The appropriate legal remedy will depend on the state, the rental agreement and whether the agreement contains an arbitration clause.

In states that have adopted the Model Tenancy Act framework, Alexander said a tenant can approach the Rent Authority and, depending on the outcome, appeal to the Rent Court and subsequently the Rent Tribunal.

Where the Model Tenancy Act does not apply, tenants may have to rely on the relevant state rent law, the rental agreement and general civil remedies. A civil claim for recovery of money may be possible, while arbitration may apply if the agreement contains a valid arbitration clause.

Fazl Askari said a legal notice should clearly demand the refund and provide an itemised account of the disputed deduction. If the matter remains unresolved, the tenant can pursue the appropriate recovery mechanism.

The tenant should retain the rental agreement, deposit and rent payment records, photographs and videos, handover proof, correspondence and the legal notice.

A security deposit is not automatically forfeited when a tenancy ends. If there is no unpaid rent, outstanding tenant liability or proven damage beyond normal wear and tear, a landlord’s justification for retaining the deposit becomes significantly weaker. The final outcome, however, will depend on the contract and the tenancy law applicable in that state.