Security Deposit Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Security Deposit, written in plain English, along with examples of how it is used.

What is Security Deposit?

(n) Security deposit is the amount collected before commencement of any activity to recover the possible loss if any caused to the owner while occurrence of such activity. For example security deposit collected from tenant can be used to recover the loss or damage of the property by tenants mishandling of property or failure to pay rent.

History and Meaning of Security Deposit

Security deposit is a common term used in both residential and commercial leasing arrangements. It is an amount of money collected from the tenant before moving into a property. The purpose of this deposit is to protect the landlord or property owner in case of any damage or unpaid rent incurred by the tenant. If damage occurs or rent is unpaid, the landlord can use the security deposit to cover the costs.

This practice has its origins in Roman law, where a "caution" was deposited by a tenant at the beginning of the lease term to ensure that the tenant would return the property to the landlord in good condition. The concept of a security deposit has since been adopted by legal systems around the world as a way to protect property owners.

Examples of Security Deposit

  1. A landlord asks a tenant to pay a security deposit equal to one month's rent before moving in. If the tenant causes damage to the property or fails to pay rent, the landlord can use the security deposit to cover the costs.
  2. A commercial tenant pays a security deposit to the landlord before leasing a storefront. If the tenant violates the lease agreement, the landlord can use the security deposit to compensate for any loss of income.
  3. A car rental company requires customers to pay a security deposit before renting a car to protect against damages or unpaid fees.

Legal Terms Similar to Security Deposit

  1. Surety Bond – A form of insurance that assures the landlord they will be compensated if the tenant causes damage beyond the security deposit amount
  2. Escrow Account – An account where the security deposit is held by a third party to ensure its safekeeping until the end of the lease term
  3. Guarantor – A third party who signs a lease agreement and agrees to be held responsible for the tenant's obligations.