Security Deposit in Leases: A New Standard for Landlords and Tenants

Historically, Israeli security deposits were unregulated. Landlords demanded excessive sums. They often began legal proceedings. This arose from rising housing costs. Increased demand also played a part. Reduced supply contributed to it. Property owners gained stronger bargaining power.

Subsequently, amendments to the Landlord and Tenant Law, 5731-1971, commonly known as the “Fair Rental Law,” were enacted in summer 2017 to address these issues and establish new standards in the rental market. This amendment represents a significant step toward a more regulated and equitable rental environment.

The amendment significantly impacts various aspects of rental agreements, primarily benefiting tenants. It dictates the format of rental contracts, specifies mandatory clauses, regulates the repair of property defects, defines uninhabitable dwellings, and more.

A comprehensive guide for both landlords and tenants outlining the key provisions of the Fair Rental Law is available in a separate article. Additionally, a related article details landlord and tenant responsibilities regarding property repairs. This article focuses on the crucial aspect of security deposits in rental agreements: permissible deposit amounts, methods of deposit release, and more. Landlords and tenants alike should carefully review this information.

**Important Note:** The Fair Rental Law does not apply to all rental agreements. Therefore, the information provided regarding security deposits may not be universally applicable. For a list of rental agreements excluded from the Fair Rental Law, click here.

Permissible Security Deposits in Rental Agreements

Landlords almost always require security deposits from tenants to guarantee compliance with the lease terms. While some landlords may forgo financial security deposits and only require guarantors, this is uncommon.

Section 25(i) of the Landlord and Tenant Law allows landlords to request multiple security deposits; however, the total sum of all deposits cannot exceed the lower of the following amounts:

1. The agreed-upon monthly rent multiplied by one-third of the lease term (e.g., if the monthly rent is NIS 2,000 and the lease term is 12 months, the maximum permissible security deposit is NIS 8,000 (4 months x NIS 2,000)).
2. Three times the monthly rent.

**Example:** If the monthly rent is NIS 4,000 and the lease term is 12 months, the maximum permissible security deposit is NIS 12,000 (the lower of NIS 16,000 (4 months x NIS 4,000) and NIS 12,000 (3 x NIS 4,000)).

Full Deposit Forfeiture for Breach of Contract?

No. Section 25(i)(c) stipulates that a landlord may only seize a security deposit under the following circumstances and for the specified amounts:

1. Unpaid Rent: The landlord may seize the deposit up to the amount of unpaid rent, plus interest and indexation as per the contract.
2. Unrepaired Tenant-Responsible Damages: The landlord may seize the deposit up to the cost of repairs.
3. Unpaid Recurring Payments: The landlord may seize the deposit up to the amount of unpaid recurring payments (rent, taxes including property tax, utilities including water, electricity, gas, and heating; homeowners’ association/management company fees (Section 25a(a) of the Landlord and Tenant Law)).
4. Non-Vacancy at Lease End: The landlord may seize the deposit up to the amount specified in the lease.

Unilateral Deposit Seizing by Landlord

No. According to Section 25(i)(d) of the Landlord and Tenant Law, a landlord may only seize a security deposit if the following conditions are met:

1. The landlord notifies the tenant of their intent to seize the deposit.
2. The landlord allows the tenant a reasonable time to rectify the issue.

Security Deposit Return

Landlords must return the security deposit. This includes any remaining balance after deductions. The deadline is 60 days. This clock starts when the property is returned. It also starts after tenant debts are settled. The later date applies (Section 25(i)(e) of the Landlord and Tenant Law). Accrued interest must be included.

Excessively High Security Deposits

Lease agreements may have excessive security deposits. Tenants can reclaim these excess funds legally. Section 14(2) of the Fair Rental Law applies. Security deposit clauses must benefit the tenant. Demanding less than allowed is legal. Demanding more violates the Fair Rental Law.

Dispute Resolution Regarding Excessive Deposits

If you’ve signed a lease and paid an excessive security deposit, you have options.

First, try an amicable resolution with your landlord. Be careful, though; anything said during these talks could be used as evidence later.

If ending the lease works for you, terminate the lease agreement. Then, demand the return of your excessive deposit as per your agreement.

If neither of these options fits, consider filing a small claims lawsuit. This can help you get your excessive deposit back or seek compensation for a breach of contract. Small claims court is often a good choice because it’s more efficient and less costly than regular civil court.