Surety Bond in Lieu of Security Deposit

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Surety Bond in Lieu of Security Deposit

Joining states like California and Florida, who have responded to real estate market conditions, the Nevada Legislature amended NRS 118A.242 in 2009, allowing landlords and tenants to negotiate the acceptance of a surety bond in lieu of all or part of a security deposit on a residential dwelling. Now, instead of having to come up with a large sum of money in advance, tenants (if the landlord agrees) are able to purchase a surety bond to cover all or part of the security deposit.

Here’s how the Nevada law reads:

(emphasis added)

NRS 118A.242  Security: Limitation on amount or value; surety bond in lieu of security; duties and liability of landlord; damages; disputing itemized accounting of security; prohibited provisions.

1.  The landlord may not demand or receive security or a surety bond, or a combination thereof, including the last month’s rent, whose total amount or value exceeds 3 months’ periodic rent.

2.  In lieu of paying all or part of the security required by the landlord, a tenant may, if the landlord consents, purchase a surety bond to secure the tenant’s obligation to the landlord under the rental agreement to:

(a) Remedy any default of the tenant in the payment of rent.

(b) Repair damages to the premises other than normal wear and tear.

(c) Clean the dwelling unit.

3.  The landlord:

(a) Is not required to accept a surety bond purchased by the tenant in lieu of paying all or part of the security; and

(b) May not require a tenant to purchase a security bond in lieu of paying all or part of the security.

4.  Upon termination of the tenancy by either party for any reason, the landlord may claim of the security or surety bond, or a combination thereof, only such amounts as are reasonably necessary to remedy any default of the tenant in the payment of rent, to repair damages to the premises caused by the tenant other than normal wear and to pay the reasonable costs of cleaning the premises. The landlord shall provide the tenant with an itemized written accounting of the disposition of the security or surety bond, or a combination thereof, and return any remaining portion of the security to the tenant no later than 30 days after the termination of the tenancy by handing it to the tenant personally at the place where the rent is paid, or by mailing it to the tenant at the tenant’s present address or, if that address is unknown, at the tenant’s last known address.

5.  If a tenant disputes an item contained in an itemized written accounting received from a landlord pursuant to subsection 4, the tenant may send a written response disputing the item to the surety. If the tenant sends the written response within 30 days after receiving the itemized written accounting, the surety shall not report the claim of the landlord to a credit reporting agency unless the surety obtains a judgment against the tenant.

6.  If the landlord fails or refuses to return the remainder of a security deposit within 30 days after the end of a tenancy, the landlord is liable to the tenant for damages:

(a) In an amount equal to the entire deposit; and

(b) For a sum to be fixed by the court of not more than the amount of the entire deposit.

7.  In determining the sum, if any, to be awarded under paragraph (b) of subsection 6, the court shall consider:

(a) Whether the landlord acted in good faith;

(b) The course of conduct between the landlord and the tenant; and

(c) The degree of harm to the tenant caused by the landlord’s conduct.

8.  Except for an agreement which provides for a nonrefundable charge for cleaning, in a reasonable amount, no rental agreement may contain any provision characterizing any security under this section as nonrefundable or any provision waiving or modifying a tenant’s rights under this section. Any such provision is void as contrary to public policy.

9.  The claim of a tenant to security to which the tenant is entitled under this chapter takes precedence over the claim of any creditor of the landlord.

(Added to NRS by 1977, 1334; A 1981, 1184; 1985, 1414; 2009, 488)

In today’s economy, this change can help landlords fill vacant apartments and houses, and it can help tenants make a move they otherwise might not be able to make, for lack of ready cash.

Surety bonds generally cost between 10-20% of the bond amount, and that cost is determined by the surety company, based on several factors which include the credit rating of the prospective tenant. For example, if the security deposit on a rental property is $1,000.00, the tenant’s cost for the bond will likely be between $100-$200.  Quite a savings on the move-in costs!

The fee for the bond is paid to the surety company, and is not a part of the security deposit itself. It’s a “hard cost” without deduction or offset. The bonding company is essentially guaranteeing the landlord will be compensated for any damages or unpaid rent when the tenant moves out, up to the full amount of the bond.

If the tenant vacates the rental property owing money to the landlord, the company who issues the surety bond pays the landlord, based on the landlord’s security deposit accounting statement. The tenant is then responsible for paying the bonding company.  If the tenant owes more than the bond amount, the landlord must pursue the tenant directly for the excess sum.

What’s in it for the landlord?

Here’s where I see a distinct advantage for Nevada landlords: If, for example, you have a prospective resident who scores on the low end of your application screening criteria and can’t come up with an increased security deposit to offset the higher risk, a bond may be the way to effect the transaction, and get that tenant into the apartment or home.  A property that otherwise might have continued to sit vacant for want of a qualified tenant can now be filled.

Do you have experience as a property manager with accepting a surety bond in lieu of all or part of a security deposit? Please share that experience with the rest of us by leaving a comment on this post.

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One thought on “Surety Bond in Lieu of Security Deposit

  1. Judy
    Judy - 8 years ago

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