In 1972, the Michigan Legislature passed a law that regulates security deposits. The law sets forth the procedures governing the collection, management, and return of security deposits. A security deposit is a deposit, in any amount, paid by the tenant to the landlord or an agent to be held for the term of the rental agreement, or any part thereof, and includes any required prepayment of rent other than the first full rental period of the lease agreement; any sum required to be paid as rent in any rental period in excess of the average rent for the term; and any other amount of money or property returnable to the tenant on condition of return of the rental unit by the tenant in conditions as required by the rental agreement. "Security deposit" does not include an amount paid for an option to purchase, unless it is shown the intent was to evade this act, nor does it include paramount paid as a subscription for or purchase of a membership in a cooperative housing association that provides dwelling units to its members.
Always remember that first, the tenant has a right to the security deposit when he/she moves from the rental unit if the tenant:
does not owe the landlord any money
does not owe for utilities
leaves the rental unit in the same condition, excluding normal wear and tear, as when the tenant moved in. Security deposits are considered the tenant's property until the landlord proves in court that money is due him
Second, a security deposit includes any money the tenant gives the landlord beyond the first month's rent (except for specifically stated non-refundable fees), whether or not the landlord defines that money as a security deposit. State law puts a limit on how much a landlord may collect for a security deposit.
Third, the Michigan security deposit law is quite specific about the procedures governing deposits, and it is important that you follow all of them closely. This law assigns tenant and landlord responsibilities the moment the lease is signed or a unit is occupied; knowing and following the procedures from the start prevents misunderstanding.