When renting a residence, the renter must pay a security deposit to the landlord, which is refunded after the contract expires. This security deposit used to be a serious concern for tenants because certain landlords in locations like Mumbai and Bengaluru used to demand security deposits of up to one month's rent to a year's rent. However, the practice of demanding large security deposits may be on the decline since the Draft Model Tenancy Act has regulated it to benefit tenants. The Act was just approved by the Union Cabinet and will be sent to all states and union territories for enactment.

MODEL TENANCY ACT SECURITY DEPOSIT LIMITS

The security deposit required to be paid in advance by the tenant under the Model Tenancy Law shall:

(a) Not more than two months' rent in the event of residential property.

(b) In the event of non-residential properties, not more than six months' rent.

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TENANT SECURITY DEPOSIT ISSUES ARE A COMMON SOURCE OF CONTENTION

"Landowners in critical metropolitan networks like Mumbai, Delhi, and Hyderabad use the significant expense of living to demand greater security stores with little regard for the condition's affordability of the house because the landlords benefit from a high ratio of potential tenants to rental properties." As a result, depending on where you live in the city, "Landlords often ask security deposits of two to six months' rent," says Rahul Grover, CEO of Sai Estate Consultants.

Sanchita Mathur, a public relations executive who lives on the streets of Delhi, says she has currently paid two months' rent as a deposit. "Sometimes landlords seek more than two months' rent," Mathur adds, "and they take their time repaying the money." The bulk of tenants, particularly in big cities, are young working people who cannot afford to pay large security deposits."Tenants may sometimes forego adequate living circumstances because they are unable to pay the high deposits requested by landlords." " Personal loans are even taken out by certain person amount," Grover continues.

THE SIGNIFICANCE OF A SECURITY DEPOSIT TO A LANDLORD

From the standpoint of a landlord, the security deposit is critical for ensuring that renters fulfill their duties under the rental agreement. The landlord has the authority, under the agreement, to offset the security deposit against any rent arrears or other costs due under the agreement. "The norm of upfront payment differs between markets," says Girish Shah, executive director, residential, Knight Frank. The first payment is made to protect against rental defaults, etc. The security deposit is currently levied by the micro-market norm and must be returned in full to the lessee after the term.


Standard wear and tear of an apartment due to usage are typically not charged, and the renter is expected to return the flat to the owner in its original state. The renter must frequently bargain to secure a reasonable security deposit. There may be some room for bargaining, and the lessee pays the landlord a mutually agreed-upon price. Lessees and landlords must both be familiar with the usual norms for security deposit agreements. The security deposit and return provisions should be included in the agreement, which should be registered at the sub-registrar office, otherwise, the contract would be void."

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SECURITY DEPOSIT LAWS IN RENTAL AGREEMENTS

The arrangements for the quantum, method of use, and reimbursement of the security deposit are left to the discretion of the parties and governed by the tenancy agreement.

"There are no arrangements in significant state tenure laws confining how much security store to be gathered from the inhabitant by the property manager (for instance, the Maharashtra Rent Control Act 1999 in Maharashtra). From the standpoint of the renter, the agreement should expressly allow a cure term to settle the arrears; otherwise, only uncontested debts should be adjusted from the deposit. Tenants should guarantee that the deposit is repaid concurrently with the tenant's departure from the premises and that the landlord fails to do so

"The tenant should be allowed to stay without having to pay any further rent or charges, while also earning interest on the unpaid deposit amount," argues Abhishek Sharma, partner, and co-head of the firm of real estate at Cyril Amarchand Mangaldas.

SECURITY DEPOSIT DOS AND DON'TS IN LEASE AGREEMENTS

•        The amount of the security deposit paid by the tenant to the landlord and when it will be reimbursed should be specified in the rental agreement.

•        Contracts must be legally recorded and signed by both parties. The agreement should not contain any hidden terms.

•        Once the contract expires, landlords must repay the security deposit. If any payment is deducted, the landlord must explain the explanation.

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