Most landlords require tenants to pay a security deposit as a condition of entering into a lease agreement. Among other things, they are typically used to cover nonpayment of rent, or any damages caused by a tenant beyond normal wear and tear. Arizona landlords need to understand the laws governing security deposits so they can avoid potentially time consuming and expensive problems arising from conflicts with tenants over the parties’ respective rights to the deposit. Here is an overview of what you need to know about Arizona’s security deposit laws.

Security Deposit Limits

The limit on the amount of security deposit in Arizona is the equivalent of one and one-half months’ rent unless it’s for mobile home spaces, in which case it cannot exceed two months rent. This requirement includes the deposit amount and mandatory advance rent payments.

Under Arizona law, the landlord may ask for an additional pet deposit. However, landlords should be aware that people with disabilities may not be discriminated against, and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, however, the tenant is liable to pay for any damages.

Storage of the Security Deposit

There are no Arizona laws requiring landlords to keep the security deposit in a particular account or location. Landlords are not required to keep the deposit with a financial institution, and can mix the tenant’s security deposit with personal assets. Notwithstanding, many landlords prefer to keep security deposits separate from their own assets for financial transparency and/or accounting purposes.

Use Of The Security Deposit

Upon the termination of the lease, the landlord can use the security deposit:

1. to cover unpaid rent;

2. to cover charges specified in the lease agreement;

3. to reimburse the landlord for cost of damages caused by the tenant’s failure to comply with obligations related to maintaining the premises; and

4. if it is a non-refundable fee or deposit, but only if the landlord has stated them as “non-refundable” in writing in the rental agreement. The tenant has the right to accompany you during the final inspection when you itemize deductions from the security deposit. This ensures there are no surprises for them if they only get back a partial amount of their security deposit after the inspection.

Repair Costs Resulting From Tenant’s Neglect vs. Normal Wear And Tear

The landlord can deduct repair costs when the tenant fails to comply with the obligation to maintain the premises. The primary tenant maintenance obligations in Arizona are to:

• maintain proper, clean, and safe disposal of garbage and other waste.

• meet applicable health and safety codes of the building at all times.

• communicate repair and maintenance needs to the landlord efficiently.

• use electrical, heating, plumbing, and other facilities in a reasonable manner.

• refrain from damaging, destroying, or removing any part of the property.

• refrain from disturbing any of the neighbors.

By contrast, landlords are prohibited from using the security deposit to cover damages resulting from normal wear and tear. This means any deterioration in the property that is caused by regular use of the tenant.

Security Deposit Refund

All security deposits are refundable unless stated otherwise in the lease agreement. Any non-refundable fees a landlord seeks to charge tenants must be included in the lease agreement. Any fee that is not specified as non-refundable will be deemed refundable.

Landlords must return a tenant’s security deposit with 14 days after the tenant moves out, along with an itemized list of deductions, if applicable. Unless the landlord and tenant have agreed to a different manner of return, the landlord should return the security deposit by sending it with the itemized list of all deductions (if any amount is due) via first-class mail to the last known address of the tenant.

Forfeiture Of The Security Deposit

If the tenant abandons the property without notice to the landlord for at least seven days and the rent has been unpaid for ten days, the tenant may forfeit the security deposit. The landlord must send the tenant a notice of abandonment via certified mail and post the notice on the door of the dwelling unit. If the tenant does not acknowledge the notice of abandonment within five days, the landlord may keep the property and the security deposit.

In addition, If the tenant does not dispute the deductions or the amount due and payable to the tenant within sixty days after the itemized list and amount due are mailed, the amount due to the tenant as set forth in the itemized list is considered valid and final.

Landlord Liability For Failing to Return the Security Deposit

If the landlord refuses or fails to return the security deposit within the 14-day period, the tenant may recover the amount that the landlord is withholding and an additional penalty equal to two times the amount withheld.

Taxability Of Security Deposits

A security deposit is not automatically considered income upon receipt by the landlord, and should not be included as income in a tax return if the landlord may still be required to return it. It only becomes taxable income when the landlord no longer has any refund obligation.

Please contact Lynx Legal Service with any questions regarding the above issues at 888-441-2355 or info@lynxlegal.com. Our experienced professionals are standing by to assist in any way we can.