Landlords Find Alternatives to Security Deposits

January 13, 2020

Renters are finding fewer places that charge a security deposit. That may be good news for tenants, but it’s a source of stress for landlords.

Security deposits have traditionally been a way for landlords to protect themselves if a resident causes damage to a property or stops making payments. But the large upfront payments before moving in have proved to be problematic for tenants. Renters can spend more than $3,400 on moving costs, according to research from Hotpads. With higher rent costs, new tenants may already be feeling stretched thin and a security deposit could even price them out.

Further, if the landlord takes any deductions from a security deposit when the tenant moves out, tensions often arise.

As such, some state and local governments are passing laws to limit security deposits. For example, Seattle has a law that limits security deposits so that they are equivalent to no more than one month’s rent. New York state recently approved a similar bill.

But landlords are still needing some assurance that a tenant won’t bail on them or leave them with a high bill for cleanup once they move out.

Some landlords are offering residents an opportunity to buy surety bonds instead of paying a security deposit. The renter pays a portion of the total deposit when they move in. That goes into a pool of funds to cover any damages or rent loss. It’s a nonrefundable upfront fee. This allows renters to save money when they go to sign a new lease, but they still may have to pay more later on. If landlords find damages from the renter once they move out, the bonding company will pay to fix those damages. They’ll then require the renter to pay for reimbursement.

Another alternative that landlords are turning to is lease insurance. “With lease insurance, instead of paying a large sum of money for a security deposit, residents pay a monthly fee over the course of their leases,” Reichen Kuhl, CEO and co-founder of LeaseLock, whose company provides lease insurance, writes for “As a result, the property owner is covered if the resident damages the property or skips their rent.”