Security deposits have long been the bane of renters and apartment operators alike, and a recently proposed Pennsylvania bill has taken a giant step towards eliminating them entirely.
Building off the recent Cincinnati Renter’s Choice Law, which requires landlords to offer deposit alternatives, a new Pennsylvania bill goes further to lay the groundwork for total deposit replacement.
In light of mounting renter affordability concerns in the face of COVID-19, this foreshadows a flood of deposit replacement laws to come. Here’s what this bill means for multifamily operators and their residents, and how it compares to other deposit regulations we’re seeing sweep across the country.
Legislators have been tightening the law around security deposits for years now. There are two forms of laws governing security deposits:
While deposit restrictions have escalated for years, more recent deposit replacement laws signal a future where residents, operators, and property owners all benefit from a wholesale move away from deposits completely.
Similar to the Cincinnati law that recently went into effect, if an apartment operator requires a security deposit, a deposit alternative or payment plan must be offered as well. However, this bill also gives operators the choice to eliminate security deposits entirely through lease insurance.
Security Deposit: For security deposits and installment plans, properties cannot collect more than two months’ rent upfront, which must then be held in escrow. The property is required to return remaining funds (and any interest acquired in escrow) to the resident within 30 days.
Lease Insurance: There are no such additional requirements for lease insurance, as no deposit is collected and the property is the insured party.
Surety Bond: Resident-sourced insurance products (such as surety bonds) create additional administrative requirements for apartment operators. Upon move-out, property managers must provide residents with:
Both lawmakers and the multifamily industry have spent years putting band-aids on the broken security deposit system.
Cities like Seattle, Portland, and Chicago have aimed to treat symptoms of the problem by passing tighter restrictions on security deposits, requiring installment plans and lowering security deposits caps.
The Cincinnati Renters Choice law, as suggested by its namesake, was focused on giving renters choices. While inching closer to the goal line, the Cincinnati law fell a bit short of eradicating security deposits at-large.
The next phase of legislation we see in Pennsylvania is now moving closer toward treating the root problem (rather than just the symptoms) by laying the groundwork to eliminate deposits entirely.
Renter affordability was already top-of-mind for lawmakers prior to COVID-19, and will undoubtedly accelerate this movement as the economic impact of the crisis ripples across the country.
The new Pennsylvania security deposit legislation shows lawmakers are paying attention and continuing to evolve legislation toward full replacement of security deposits as a financial instrument in rental housing. There is agreement among residents, operators, and owners that deposits need to go. Recent legislation suggests that deposits may be headed toward extinction faster than we all thought.