Minnesota security deposit laws for landlords: three weeks, 1% interest and the $500 bad faith penalty

What is the three week deadline and what starts it?

Under subdivision 3(a), every landlord must, within three weeks after termination of the tenancy, and after receipt of the tenant's mailing address or delivery instructions, either return the deposit with interest or give the tenant a written statement showing the specific reason for withholding any part. If the tenant leaves because the building was legally condemned, through no willful or malicious conduct of the tenant, the period is five days from the date the tenant leaves. Mailing counts: first-class mail, postage prepaid, in an envelope with a proper return address sent to the address the tenant gave, within the period.

The reference to the tenant's address is practical. Ask for it in writing at move-out. Three weeks is a short window, so start the statement as soon as the unit is empty.

What may I withhold?

Only amounts reasonably necessary for two things: to remedy tenant defaults in the payment of rent or other funds due to you under an agreement, and to restore the premises to their condition at the start of the tenancy, ordinary wear and tear excepted. In any action about the deposit, the burden of proving the reason for withholding is on the landlord, by a fair preponderance of the evidence (subdivision 3(c)). The section covers a deposit meant to secure performance of the rental agreement, other than one that is exclusively advance rent (subdivision 1). Section 504B.182 separately requires notice of an initial inspection and a move-out inspection when the tenant asks, and failing it triggers the same damages as a late statement.

How is the 1% interest computed?

Subdivision 2 says the deposit bears simple, noncompounded interest at one percent per annum, computed from the first day of the next month following full payment of the deposit to the last day of the month in which you, in good faith, comply with the return rules, or to the judgment date if earlier. Any interest amount under $1 is excluded. The deposit is held for the tenant who is party to the agreement.

Example a made-up tenant pays a $1,200 deposit in full on January 15 and leaves on July 31. Interest starts February 1. The landlord returns the deposit on August 14, so interest runs through August 31, seven months (February to August). One percent of $1,200 is $12 a year; seven twelfths of that is $7.00. The refund is the deposit less documented deductions, plus $7.00.

What happens if I miss the deadline?

Subdivision 4 says a landlord who fails to provide the written statement in time, to transfer or return the deposit on a sale, or to give the inspection notices and complete the inspections when requested, is liable for the portion of the deposit withheld plus interest as a penalty, in addition to the portion wrongfully withheld. Put simply, the withheld amount is owed twice. Subdivision 7 adds punitive damages of up to $500 per deposit for bad faith retention. If you have not complied with subdivision 3 or 5, retention is presumed bad faith unless you return the deposit within two weeks after an action to recover it begins.

Example a made-up landlord withholds $300 of a $1,200 deposit and sends no statement within three weeks. A court finds the $300 was not justified. The landlord owes the $300 wrongfully withheld, a $300 penalty and the interest on both, and possibly up to $500 more for bad faith, so as much as $1,100 plus interest on a $300 dispute.

Can a tenant skip the last month's rent and call it the deposit?

Subdivision 8 says no tenant may withhold the rent for the last payment period on the ground that the deposit should serve as payment. Withholding creates a rebuttable presumption that the tenant did exactly that. A tenant who stays in violation after written demand is liable for a penalty equal to the part of the deposit you may withhold other than for rent, plus interest on the whole deposit, in addition to the rent. There are narrow exceptions for month to month tenancies where no notice to quit was served, and for certain contract for deed and foreclosure periods.

What if the building sells?

Within 60 days of the end of your interest, or when the buyer must return or account for the deposit if earlier, you either transfer the deposit with interest to the buyer and notify the tenant of the buyer's name and address, or return it with interest to the tenant (subdivision 5). The buyer takes on your rights and duties, except that if the tenant does not object to the stated deposit amount within 20 days of written notice, the buyer's duty is limited to the amount in that notice (subdivision 6). More in security deposits when an apartment building is sold.

How DoorKeeping handles it

DoorKeeping records each tenant's deposit as a separate line in the property's own books, which is where the interest and sale-day figures come from. Signed leases and inspection notices live with the property's documents. Deposits stay in your own bank account: DoorKeeping never holds your money and sends a payment only when you approve it. It gives no legal advice.

Sources

1. Minnesota Statutes section 504B.178, interest on security deposits, withholding and damages, read Oct 30, 2026

Questions

How long does a Minnesota landlord have to return a security deposit?

Three weeks after the tenancy ends and after receiving the tenant's mailing address or delivery instructions, or five days if the tenant leaves because the building was condemned.

Does Minnesota require interest on a security deposit?

Yes, simple interest of 1 percent a year, with amounts under $1 excluded (504B.178 subd. 2).

Is there a cap on a Minnesota security deposit?

Section 504B.178 sets no cap on the amount.

What is the penalty for missing the Minnesota deadline?

The amount withheld plus interest again as a penalty, and up to $500 punitive damages for bad faith retention.