Security Deposit Law
What Minnesota landlords must do with security deposits — the cap, interest, return deadline, account rules, and penalties — with citations to the statute itself.
Verified as of June 15, 2026
This page is general information, not legal advice. Statutes change — verify with the cited sources or an attorney.
Deposit cap
No state limit; Minneapolis caps deposits at one month's rent (sometimes half a month).
Interest
1% simple annual interest.
Return deadline
Three weeks after the tenancy ends (5 days if the tenant left due to condemnation), return the deposit with interest or send a written statement of the specific reason for withholding.
Minn. Stat. § 504B.178 sets no maximum deposit amount. Minneapolis, however, caps deposits at a single month's rent — and at one-half month's rent if the lease requires the tenant to pay, before tenancy starts or before the end of the first month, more than the first installment of rent plus the deposit (with a 1½-month exception for nonprofit/agency referrals).
Minn. Stat. § 504B.178 · Minneapolis, Minn., Code of Ordinances § 244.2040(b)
Deposits bear 'simple noncompounded interest at the rate of one percent per annum,' computed from the first day of the month after full payment of the deposit until the last day of the month in which you comply in good faith with the return requirements (or until judgment, if earlier). Interest totaling less than $1 is excluded.
Minn. Stat. § 504B.178, subd. 2 · 2024 Minn. Laws ch. 85, § 105 (HF 4483)
The clock runs after termination of the tenancy AND 'after receipt of the tenant's mailing address or delivery instructions.' Mailing counts: it is sufficient compliance if the deposit or written statement is placed in U.S. first-class mail, postage prepaid, correctly addressed per the tenant's instructions, within the deadline. The 5-day deadline applies when the tenant leaves due to legal condemnation not caused by the tenant's willful, malicious, or irresponsible conduct. In any dispute, the landlord bears the burden of proving the reason for withholding by a fair preponderance of the evidence.
No separate or escrow account is required. The statute says the deposit 'shall not be considered received in a fiduciary capacity' but 'shall be held by the landlord for the tenant' — you hold it (with the 1% interest obligation), and on sale or other termination of your interest you must transfer or return it within 60 days.
A landlord who misses the 3-week/5-day statement, fails the sale-transfer rules, or fails the § 504B.182 inspection duties 'is liable to the tenant for damages in an amount equal to the portion of the deposit withheld by the landlord and interest thereon... as a penalty, in addition to the portion of the deposit wrongfully withheld... and interest thereon' (subd. 4). Bad-faith retention adds punitive damages 'not to exceed $500 for each deposit' (subd. 7), and retention is presumed bad faith if you violated subd. 3 or 5 and don't return the deposit within two weeks after the tenant sues. Lease waivers of any of this are void (subd. 10).
Minneapolis: MCO § 244.2040 (Ord. No. 2019-038, effective June 1, 2020; Title 12, Ch. 244, Art. XVI) caps deposits at a single month's rent; if the lease requires payment, before tenancy starts or before the end of the first month, of 'more than the first installment of rent plus the deposit,' the cap is one-half of a single month's rent and the tenant may pay it in up to three monthly installments in amounts the tenant reasonably requests; referral units (nonprofit/government agency) may take up to 1½ months' rent. 'Single month rent' is defined pro-rata for non-monthly payment periods and includes the full contract rent for subsidized tenancies. When returning the deposit or sending the 504B.178 statement, the landlord must also deliver 'a written notice of rights under state law and local ordinance regarding security deposits in a form and manner approved by the city' — which the city's official page implements as including a copy of Minn. Stat. 504B.178 and MCO 244.2040 with the returned deposit. Enforcement includes criminal prosecution, rental-license action, and administrative fines, with no prior notice of violation required. Citation of record: Minneapolis Code of Ordinances via library.municode.com (URL live; JS-rendered) and lims.minneapolismn.gov; verbatim text above verified against the official City page (www2.minneapolismn.gov security-deposits page) and the unofficial mirror minnesotalandlordlaw.com. No security-deposit cap ordinance was identified in other Minnesota cities (St. Paul included) — verify locally.
You 'may withhold from the deposit only amounts reasonably necessary: (1) to remedy tenant defaults in the payment of rent or of other funds due to the landlord pursuant to an agreement; or (2) to restore the premises to their condition at the commencement of the tenancy, ordinary wear and tear excepted.' Clause (1) reaches beyond rent to other sums the lease makes the tenant owe you (e.g., lease-obligated utilities or fees) — but anything outside these two clauses, you must prove reasonably necessary under one of them, and the burden of proof is on you.
Every deposit accrues simple noncompounded interest at 1% per year from the first day of the month after full payment until the month you comply in good faith with the return rules. Interest under $1 total is excluded.
Within three weeks after the tenancy ends — five days in condemnation cases — and after receiving the tenant's mailing address or delivery instructions, return the deposit with interest or send a written statement of the specific reason for each withholding. First-class mailing within the deadline, properly addressed, is sufficient compliance.
At the start of tenancy (or within 14 days of occupancy) you must notify the tenant of their option to request an initial inspection, and before move-out you must notify them in writing of their option to request a move-out inspection (no earlier than 5 days before the end) so they can fix deficiencies and avoid deductions; with the tenant's agreement, acknowledged photos/videos can substitute. Failing to give these notices or complete a requested inspection triggers the subd. 4 penalty — an amount equal to the withheld portion plus interest, on top of returning it.
A tenant may not withhold the last payment period's rent 'on the grounds that the deposit should serve as payment for the rent,' and withholding the last payment creates a rebuttable presumption that's what they did. But the statutory penalty (the deposit portion you could withhold for non-rent items, plus interest on the whole deposit, on top of the withheld rent) applies only to a tenant who 'remains in violation of this subdivision after written demand and notice of this subdivision' — and the prohibition does not apply to a month-to-month tenancy where neither party has served a notice to quit, or during contract-for-deed cancellation or mortgage-foreclosure redemption periods.
When your interest in the property terminates (sale, assignment, death, receivership), you must within 60 days either transfer the deposit (less lawful deductions, plus interest) to your successor and notify the tenant of the transfer and the transferee's name and address, or return it to the tenant. The successor inherits all deposit obligations.
You become liable for a penalty equal to the entire portion withheld plus interest, on top of returning it — and if you don't return the deposit within two weeks after the tenant sues, retention is presumed to be in bad faith, adding up to $500 in punitive damages per deposit.
Since the 2023 amendments, failing to give the § 504B.182 inspection notices (or to complete a requested inspection) is itself a basis for the subd. 4 penalty — an amount equal to the deposit portion withheld plus interest, in addition to the wrongfully withheld amount.
MCO 244.2040 violations 'may result in criminal prosecution, adverse rental license action, and/or administrative fines, restrictions, or penalties,' with no prior notice of violation required; you must also let the tenant pay a half-month deposit in up to three monthly installments.
Minneapolis, Minn., Code of Ordinances § 244.2040(b), (d) · City of Minneapolis — Security Deposits (official page)
Void and unenforceable: 'Any attempted waiver of this section by a landlord and tenant, by contract or otherwise, shall be void and unenforceable' (subd. 10) — the 1% interest, three-week deadline, and penalties apply regardless of what the lease says.
State law sets no cap. But in Minneapolis, MCO 244.2040 caps the deposit at a single month's rent — and if your lease requires the tenant to pay, before the tenancy starts or before the end of the first month, more than the first installment of rent plus the deposit, the cap drops to half a month's rent and you must allow the tenant to pay it in up to three monthly installments. Units rented through a nonprofit or government-agency referral may take up to 1½ months' rent.
Three weeks after the tenancy ends and after you receive the tenant's mailing address or delivery instructions — five days if the tenant left because the building was condemned through no fault of their own. Return the deposit with 1% simple interest, or send a written statement giving the specific reason for every dollar withheld; first-class mailing within the deadline counts as compliance.
Yes — simple noncompounded interest at 1% per year, computed from the first day of the month after the deposit is paid in full until the month you comply with the return requirements. If the total interest is under $1, it's excluded. A 2024 law (ch. 85, § 105) cleaned out obsolete pre-2003 3% language but didn't change the current rate.
Only amounts reasonably necessary '(1) to remedy tenant defaults in the payment of rent or of other funds due to the landlord pursuant to an agreement; or (2) to restore the premises to their condition at the commencement of the tenancy, ordinary wear and tear excepted' (Minn. Stat. § 504B.178, subd. 3(b)). Clause (1) covers more than rent — it reaches other sums the tenant owes you under the lease, like lease-obligated utilities. But every deduction must fit one of these two clauses, and in court the burden of proving it is on you.
Generally no — subd. 8 prohibits withholding the last payment period's rent on the theory the deposit covers it, and withholding the last payment creates a rebuttable presumption that's what happened. To collect the statutory penalty, though, you must first give written demand and notice of the subdivision and the tenant must remain in violation; the prohibition also doesn't apply to a month-to-month tenancy where neither side has served a notice to quit.
You owe the wrongfully withheld portion plus interest, plus a penalty in the same amount with interest — effectively double. Bad-faith retention adds punitive damages up to $500 per deposit, and bad faith is presumed if you broke the return rules and don't give the deposit back within two weeks after the tenant files suit.
This page is general information, not legal advice. Statutes change — verify with the cited sources or an attorney.
Statute facts on this page were verified against the cited official sources on June 15, 2026.
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