Extracting Security Deposit Terms From a Residential Lease

The security deposit looks like the easiest field on a lease: one number, near the front, usually bolded. It is easy right up to the point where the lease says “an amount equal to two months’ rent”, at which point it is not a number at all and the rest of the clause decides what happens to it.

The amount is often a formula

Three ways the amount appears, and they do not extract into the same field:

• A stated sum. “Tenant shall deposit $3,600.00”. Store the amount and a basis of stated.
• A multiple of rent. “an amount equal to two (2) months of Base Rent”. Store the multiplier, the rent it multiplies, and the resolved amount separately — and record which rent, because a lease with escalations has several.
• A multiple with a replenishment obligation.“If Landlord applies any portion of the Deposit, Tenant shall within ten (10) days restore the Deposit to an amount equal to two (2) months of the then-current Base Rent.” The obligation is now indexed to a rent that moves.

The third case is why the basis matters. Take a monthly rent of $30,000 at execution, escalating 3% a year on each anniversary. Two months at execution is $60,000. If a draw happens in lease year five, the replenishment obligation is computed on the then-current rent:

Year 1 monthly rent      30,000.00
Year 5 annual rent      405,183.17   (3% compounded)
Year 5 monthly rent      33,765.26

Deposit at execution     2 x 30,000.00 = 60,000.00
Replenishment in Y5      2 x 33,765.26 = 67,530.53
Difference                               7,530.53

Two months’ rent is one clause and two amounts. A record that stores 60,000 and nothing else cannot answer what the tenant owes after a draw. The fields that make it answerable are deposit_basis, deposit_multiplier, deposit_rent_reference (at_execution or then_current) and deposit_amount_resolved with the date it was resolved at. The escalation arithmetic behind the year-five figure is worked in extracting rent escalation schedules.

Commercial leases add a fourth shape: a burn-down. “Provided no Event of Default has occurred, the Deposit shall be reduced by $15,000.00 on each of the third and fifth anniversaries of the Commencement Date.” That is a conditional schedule with dates and a condition, and it produces a deposit balance that is a function of time and of default history, not a constant.

What is not a security deposit

Leases collect several sums at signing and they are legally distinct, which means they must be distinct fields. Last month’s rent paid in advance is prepaid rent, not a deposit. A pet deposit, a key deposit, a cleaning fee and a non-refundable move-in fee each behave differently, and the refundable-or-not distinction is exactly the thing a summary flattens away.

Extract a list of amounts collected, each with a type from a closed vocabulary and a refundable flag, plus the total. Then assert that the components sum to any stated total — the standard cross-field amount validation rule. A lease that lists four amounts and a total that does not foot has either an extraction error or a drafting error, and both are worth surfacing.

The distinction has teeth because several jurisdictions cap the total that may be collected as a deposit and treat some of these labels as deposits regardless of what the lease calls them. Which is precisely the reason the extraction should preserve the label and the amount separately rather than deciding the question itself.

Holding terms and interest

The holding clause has four extractable sub-fields, all of which are commonly missed because they read as boilerplate:

• Where it is held. A named institution, a separate account, a trust or escrow account, or silence.
• Commingling. Whether the lease permits the deposit to be mixed with the landlord’s other funds. A boolean, and frequently a stated prohibition.
• Interest. Whether interest accrues, at what rate or by reference to what benchmark, how often it is paid or credited, and to whom it belongs. “Interest shall accrue for the benefit of Tenant and be paid annually” and “Landlord shall retain any interest” are opposite outcomes drafted in adjacent sentences.
• Transfer on sale. What happens to the deposit if the building is sold, which is usually a transfer to the purchaser and a release of the original landlord.

Commercial leases add the letter of credit, which replaces the deposit with a bank instrument and brings its own field set: issuing bank, face amount, expiry date, whether it auto-extends (an evergreen clause with its own non-renewal notice period), the draw conditions, and the obligation to replace it if the issuer’s rating falls. The expiry date and the auto-extension notice window are deadlines, and they are the same species of arithmetic as an auto-renewal notice window — counted backwards from a stated date, with a hard consequence for missing it.

Return timeline and itemisation

The return clause is a deadline anchored on an event: “within thirty (30) days after Tenant surrenders possession”, or “after the expiration of the Term”, or “after Tenant delivers a forwarding address”. Those three anchors can be weeks apart, and the third one is an anchor the landlord does not control.

So the extracted record is a duration plus an anchor event, the same shape used for post-employment covenants in extracting non-compete terms, and the resolved date requires a move-out record. Alongside it:

• Itemisation. Whether a written statement of deductions is required, and whether it must accompany the return or may follow it.
• Permitted deductions. Usually unpaid rent, damage beyond ordinary wear and tear, and cleaning; the phrase “ordinary wear and tear” is doing a great deal of work and its presence or absence is worth a flag.
• Delivery method for the return and the statement, which may differ from the general notices clause.

Jurisdiction is a field, not a rule

Residential deposits are regulated, and the regulation differs by state, and in many places by city or county on top of that. Deposit caps, whether interest must be paid, the return deadline, the itemisation requirement and the consequence of missing the deadline are all set locally, and they are amended.

This is the strongest argument in this cluster for keeping the extraction and the reasoning apart. The extraction’s job is to record what the lease says and where the property is; deciding whether what the lease says is permissible is a rules question that belongs in a maintained table keyed by jurisdiction, not in a prompt and never in a model’s general knowledge, which has a training cutoff and no notion of which version of a statute was in force on a given date.

• Property address as stated in the lease, parsed to state and locality — not the landlord’s address, which is frequently elsewhere.
• Governing law where stated, kept separate from the property location, because a residential lease occasionally names a different one.
• Lease execution date, because the rules that apply are generally those in force at the relevant time, and a rules table has to be queried by date as well as by place.

Built that way, the deposit record answers useful questions without asserting anything it should not: which leases hold deposits above some multiple of rent, which are silent on interest, which have a return deadline anchored on an event nobody has recorded yet. Each of those is a query, and each is only possible because the amount, the basis, the anchor and the jurisdiction were kept as separate fields instead of being summarised into a sentence.