Landlords will always want to protect their rental property, and one way of doing so is by obtaining a security deposit from the tenant at the beginning of the tenancy. Indiana defines a security deposit as any of the following:

  • A required prepayment of rent other than the first full rental payment period.
  • A sum required to be paid as rent in any rental period in excess of the average rent for the term.
  • Any other amount of money or property returnable to tenant on condition of return of the premises in a condition as required by the rental agreement.

Unlike in other states, in Indiana a landlord may accept a lien on a motor vehicle owned by the tenant as a security deposit or to secure the payment of rent by the tenant. If a landlord accepts a lien on a motor vehicle as security under this section, the landlord must: (1) file or record the lien under IC 32-33; and (2) comply with the requirements of IC 32-31-3 concerning security deposits; in order to enforce the lien.

Allowable Charges

A security deposit can only be used for specific purposes related to the tenancy. The predominate use of the security deposit will be for any damages caused by the tenant beyond ordinary wear and tear. But the deposit can also be used to pay the landlord for any and all rent in arrearage; for rent due for early termination of the rental agreement; to pay for the last payment period (if in writing), and; to reimburse landlord for utility or sewer charges paid by landlord that are the obligation of the tenant and unpaid.

Return of Security Deposit

The landlord has 45 days after termination of occupancy to mail tenant an itemized list of damages. The itemized list must include the estimated repair costs for each damaged item, the amounts assessed, and reference the specific lease agreement. The landlord must also include a check or money order for the difference between the damages claimed and the amount of the security deposit held by the landlord.

It is important to note that the landlord is not liable until receiving a mailing address from the tenant where the notice and deposit can be sent. The landlord is liable if they fail to provide proper notice of damages to the tenant. In that case, the landlord must remit the full security deposit to the tenant. For wrongfully withholding a portion of the security deposit the landlord is liable for the amount withheld, plus attorneys fees and court costs.