Leasing License Practice Exam

Who must pay interest on security deposits in residential properties?

1. Any landlord

2. Landlords with fewer than 25 units

3. Landlords with 25 or more units

4. Only property managers

The correct answer is: Landlords with 25 or more units

In many jurisdictions, landlords with 25 or more units are typically required to pay interest on security deposits for residential properties. This requirement is often established in state laws or local regulations that aim to protect tenants. The rationale behind this requirement is that larger landlords, who can afford to manage multiple properties and may have significant sums held as security deposits, should provide tenants with a return on their deposits over time. This approach helps ensure equity between landlords and tenants, particularly because security deposits can be substantial. For tenants, receiving interest on their deposits serves as a small incentive and acknowledgment of their contribution, reflecting a fairer rental practice. Smaller landlords or those with fewer units may not be subject to the same rules regarding interest on security deposits, which is often due to the complexities and costs associated with managing these requirements in smaller-scale operations. Property managers typically act on behalf of landlords and may not hold the legal responsibility to pay interest, as that responsibility rests with the property owner.