Security deposit
A security deposit is money a tenant pays to secure performance of a lease. In Minnesota it is governed almost entirely by Minn. Stat. 504B.178, and that statute is stricter than most people on either side of a lease realise.
No cap, tight return#
Minnesota does not limit the deposit amount. Unlike states capping it at one or two months' rent, the statute sets no maximum — though some cities impose their own limits, and Minneapolis is one of them.
Any lease form or online guide stating a statewide months-of-rent cap is describing a different state.
What Minnesota requires instead is discipline at the end.
The deadlines#
Three weeks after the tenancy terminates, the landlord must return the deposit with interest or provide a written statement of what is being withheld and why.
Five days where the tenant left because the building was legally condemned, for reasons not caused by the tenant's own willful, malicious or irresponsible conduct.
The clock runs from receipt of the tenant's mailing address or delivery instructions, which is why a tenant leaving without providing one delays their own deposit.
The interest#
Simple, non-compounded, at one percent per year, computed from the first day of the month after the deposit was paid in full.
It was three percent until 1 August 2003. Amounts under a dollar are excluded.
The sums are small and the obligation is real, and it is one of the requirements small landlords most often overlook entirely.
The penalties, which are unusually sharp#
A landlord who fails to provide the statement on time, fails to return the deposit, or fails to transfer it on a sale, is liable to the tenant for the withheld portion plus interest as a penalty — in addition to the portion wrongfully withheld.
Bad-faith retention adds punitive damages up to $500 per deposit.
And retention is presumed to be in bad faith where the landlord did not comply, unless the deposit is returned within two weeks of an action being commenced to recover it.
That structure means a landlord who simply missed the three-week deadline on a deposit they were entitled to keep can end up paying it twice over plus punitive damages.
What happens on a sale#
The provision most relevant to anyone buying rental property.
When the landlord's interest terminates — by sale, assignment, death, or appointment of a receiver — the deposit must be transferred or accounted for within 60 days of that termination, or when the successor is required to account to the tenant, whichever comes first.
The obligation to return the deposit follows the property. A buyer who closes without receiving the deposits has acquired the liability without the funds, and discovers it when the first tenant moves out.
Confirming deposit amounts and receiving them at closing is the buyer's only protection, and it belongs on the settlement statement rather than in a conversation.