Pennsylvania House Bill 2427, introduced on April 21st, 2020, would require property management companies to offer alternatives to a security deposit, including an installment plan or a deposit alternative in the form of a surety bond. If passed, renters would be able to post a surety bond in lieu of the full amount of the security deposit. Surety bonds can be purchased by paying a non-refundable premium that is a small percentage of the full security deposit amount.
Many states already have security deposit surety bonds in place; Florida, Illinois, Michigan, and North Carolina. Security deposit bonds are also options that private landlords and property managers have the option to utilize. Often times, these are 1% of the security deposit amount. A security deposit surety bond is a guarantee from a surety company that any unpaid rent and or damages to a rental property will be covered, up to a certain amount. Surety bonds do not release a renter from responsibility for unpaid rent or damage to the property. If a bond claim were to occur, the surety company pays the landlord or property owner, but will then pursue the tenant for the payout amount.
Allowing for a security deposit surety bond to be purchased in lieu of paying the traditional full amount of the deposit benefits both the tenant and landlord. Tenants benefit by paying a premium that is a fraction of the full security deposit amount. One of the most common reasons tenants sue landlords is in regards to security deposit disputes. A surety bond would free the tenants of having to pay litigation and attorney costs, as this would be the responsibility of the surety company. Landlords would benefit by freeing themselves of the liability and accounting responsibilities of holding deposit funds. Many states require special escrow accounts to be set up to hold tenant security deposits, and that unreasonably high interest be paid to the tenant on the deposit. Overhead accounting costs for tracking deposit funds would no longer be necessary.