Security Deposit

Money paid in advance to protect the provider of a product or service against damage or nonpayment by the buyer. For example, landlords require a security deposit of one month's rent when a tenant signs a lease, to cover the possibility that the tenant will move out without paying the last month's rent, or that the tenant will inflict substantial damage on the property while living there. In such a case, the money from the security deposit is used to cover repairs. Similarly, car leasing companies typically demand security deposits for the last month's lease payment to protect the leasing company against damage to the car or nonpayment of the lease. If all payments are made on time and there is no damage, security deposits must be returned to those who paid them.

A cash payment required by a landlord, to be held during the Term of a Lease to offset damages incurred due to actions of the tenant. Such damages may include physical damage to the property, theft of property, failure to pay back rent and breaking the lease. Forfeiture of the deposit does not absolve the tenant of further financial Liability. Laws in most states require landlords to hold the deposit in a separate account and refund the amount within a specified time after termination of the lease.
Example: A landlord requires a security deposit equal to one month's rent, payable at the signing of the lease. An additional deposit is required for tenants with pets. At termination of the lease, the landlord inspects the rented unit. If there is no reason for forfeiture, the landlord refunds the deposit within 30 days.