Minnesota Security Deposit Law: What Landlords Need to Know

Security deposits cause more landlord and tenant disputes in Minnesota than almost anything else, and the rules are stricter than many owners expect. Minnesota requires landlords to pay interest on deposits, to return them (or explain deductions) on a short deadline, and, since 2023, to offer tenants move-in and move-out inspections. This guide walks through what Minnesota Statutes section 504B.178 and section 504B.182 require, in plain language.

Is there a limit on how much you can charge?

Section 504B.178 does not set a maximum security deposit amount. The rules in this guide apply to any deposit that secures a residential lease, other than money that is purely an advance payment of rent.

You must pay interest on the deposit

Minnesota is one of the few states that requires interest on security deposits. The deposit earns simple, noncompounded interest at 1% per year. Interest starts on the first day of the month after the tenant pays the deposit in full and runs until the last day of the month in which you return the deposit or send your written statement. Interest amounts under $1 are excluded.

The three-week deadline

Once the tenancy ends and you have the tenant's mailing address or delivery instructions, you have three weeks to do one of two things:

• Return the full deposit with interest, or
• Send a written statement showing the specific reason for withholding all or part of the deposit (and return any remainder with interest).

If the tenant has to leave because the building was legally condemned for reasons that were not the tenant's fault, the deadline is five days. Mailing the deposit or statement by first class mail, correctly addressed with a return address, within the deadline counts as on time.

What you can deduct

You may only keep amounts reasonably necessary to:

• Cover unpaid rent or other money the tenant owes under the lease, or
• Restore the unit to its condition at the start of the tenancy, ordinary wear and tear excepted.

If the deposit ends up in court, the landlord has the burden of proving the reason for any deduction. Dated photos, the move-in condition report, invoices and receipts are what carry that burden.

Move-in and move-out inspections (required since 2023)

Section 504B.182, added in 2023, gives tenants the right to request inspections:

• Initial inspection: at the start of the tenancy, or within 14 days of the tenant moving in, you must tell the tenant they can request an initial inspection to document existing problems. If they ask, schedule it at a mutually acceptable time.
• Move-out inspection: within a reasonable time after either side gives notice to end the tenancy, or before the lease ends, you must tell the tenant in writing that they can request a move-out inspection and be present for it. If requested, it happens no earlier than five days before the tenancy ends, so the tenant has a chance to fix issues and avoid deductions.
• Photo or video option: if the tenant agrees, you can instead give written acknowledgment of photos or videos of the unit and agree on its condition at the start or end of the tenancy.

This matters for your deposit: failing to give these notices, or to complete an inspection the tenant requested, is one of the failures listed in the damages section of 504B.178.

Penalties for getting it wrong

• Missing the deadline or the inspection rules: a landlord who fails to comply is liable for a penalty equal to the portion of the deposit withheld plus interest, on top of returning the wrongfully withheld amount with interest. In practice, that can mean paying back roughly double.
• Bad faith: bad faith retention can add punitive damages of up to $500 per deposit. If you did not follow the return or transfer rules, keeping the deposit is presumed to be in bad faith unless you return it within two weeks after the tenant files an action to recover it.
• No waivers: any lease clause that tries to waive these rules is void.

A tenant can sue to recover a deposit, including in conciliation court, in the county where the rental is located or, at the tenant's option, the county where the landlord lives.

Tenants can't use the deposit as last month's rent

A tenant generally may not withhold the last month's rent on the grounds that the deposit should cover it (month-to-month agreements where neither side has served a notice to quit are an exception). A tenant who keeps doing so after written demand and notice of the law can owe the landlord a penalty plus interest, in addition to the unpaid rent.

Selling the property? Handle the deposit within 60 days

When your interest in the property ends, for example through a sale, you or your agent must within 60 days either transfer the deposit (minus lawful deductions, with interest) to the new owner and notify the tenant of the new owner's name and address, or return it to the tenant.

A simple compliance checklist

• Track the date each deposit is paid in full so you can calculate 1% simple interest.
• At move-in, give the tenant written notice of their right to an initial inspection (within 14 days of occupancy), or agree on photos or video.
• Complete and keep a dated move-in condition report.
• When notice to end the tenancy is given, send written notice of the move-out inspection option.
• Get the tenant's forwarding address or delivery instructions.
• Within three weeks, return the deposit with interest or mail an itemized written statement of specific deductions.
• Keep photos, invoices and receipts for every deduction.

How Fuze Real Estate helps

Fuze's leasing service includes move-in condition reporting, and our full-service management covers lease enforcement and legal notices for Twin Cities rental owners. If you'd rather not track deposit deadlines yourself, see how Fuze property management works or view our pricing.

This article is general information, not legal advice. It summarizes Minnesota Statutes sections 504B.178 and 504B.182 as published in the 2025 Minnesota Statutes. Laws change, and the Legislature amended Chapter 504B in its 2026 session, so check the current statutes or talk with a Minnesota attorney about your situation.