Security Deposits in Michigan Commercial Leasing
Understand the unregulated nature of commercial security deposits in Michigan, including bank guarantees and the lack of statutory limits.
Legal Disclaimer
This content is for general informational and educational purposes only. It does not constitute legal advice and should not be relied upon as such. Laws change frequently — always verify current regulations and consult a licensed attorney in your jurisdiction for advice specific to your situation. Landager is a property management platform, not a law firm.Information last verified: May 2026.
Since Michigan's admission to the Union on January 26, 1837, the state's legal framework for commercial property has been rooted in common law and freedom of contract. Michigan legislation governing security deposits—specifically the Landlord and Tenant Relationships Act (Act 348 of 1972) with its strict 1.5-month caps and 30-day return policies—explicitly excludes commercial tenancies.
In the Michigan commercial real estate sector, security deposits are completely unregulated by statute.
No Statutory Limits or Return Deadlines
Because there is no prevailing state law regarding commercial deposits:
- There is no cap on the amount. A commercial landlord in Detroit can demand the equivalent of six months of gross rent as a security deposit, provided the tenant signs the lease.
- There is no legal requirement to hold the funds in a regulated escrow account or secure a surety bond (unless deliberately drafted into the commercial lease).
- There is no statutory 30-day deadline to return the deposit after the tenant moves out.
The entire process is governed exclusively by what is written in the lease agreement. If the lease states the deposit will be returned within 60 or 90 days after vacating to allow the landlord to audit the final year's NNN outgoings statement, Michigan courts will enforce that 90-day waiting period.
Methods of Holding Commercial Security
For high-end industrial or retail properties, requiring massive upfront cash deposits is often impractical for the tenant's operating cash flow and creates liabilities for the landlord. Michigan commercial landlords frequently rely on alternative security instruments.
Letters of Credit (Bank Guarantees)
The gold standard for commercial security in Michigan is an irrevocable, unconditional Letter of Credit.
Instead of depositing $80,000 cash into the landlord's account, the tenant's commercial bank issues a formal guarantee. If the tenant breaches the lease, the landlord presents the Letter of Credit to the bank, and the bank pays the landlord the requested funds (up to the $80,000 limit) unconditionally.
- Advantage: If the commercial tenant files for bankruptcy, a cash deposit held by the landlord might become tied up in federal bankruptcy court as "property of the debtor's estate." A Letter of Credit belongs to the bank, not the tenant, allowing the landlord to cleanly access the funds to cover lost rent despite the bankruptcy filing.
Personal Guarantees
Because many commercial tenants are insulated behind Limited Liability Companies (LLCs), landlords often require a "Personal Guarantee." The individual owner of the business signs a separate legal document promising that if the LLC defaults on the commercial lease, the landlord can legally seize the owner's personal assets (their house, cars, personal bank accounts) to cover the lost rent.
Managing the Security
While you are not bound by the state's 14-day location notice requirement for commercial leases, you must rigorously track your commercial security instruments. A lapsed $250,000 Letter of Credit that an administrative assistant forgot to renew leaves a landlord completely exposed. Landager systematically tracks expiration dates and "top-up" thresholds for complex commercial security instruments, ensuring your multi-million dollar Michigan portfolio is constantly collateralized.
How Landager Helps
Landager tracks lease terms, important compliance deadlines, and security deposit details - making it easy to stay compliant with Michigan regulations.
Frequently Asked Questions
▶What are the Michigan landlord-tenant laws every property owner should know?
Renting residential property in the state of Michigan requires strict adherence to a specific set of legislative acts, most notably the Landlord and Tenant Relationships Act (Act 348 of 1972) governing security deposits, and the Truth in Renting Act (Act 454 of 1978) governing lease clauses. This guide covers the essential compliance requirements for property owners and landlords.
Read the complete guide▶What is the Michigan eviction process and how long does it take?
The Michigan eviction process requires landlords to provide written notice to tenants before filing a court action. The type and length of notice depends on the reason for eviction — typically shorter for non-payment of rent and longer for lease violations or no-fault terminations. Self-help evictions (changing locks, removing belongings, shutting off utilities) are illegal in Michigan. The full court process varies but typically takes several weeks.
Read the complete guide▶What are the Michigan security deposit rules and return deadlines?
Michigan has specific rules governing how much landlords can charge for security deposits, how deposits must be held, and the deadline for returning deposits after a tenant moves out. Landlords must provide an itemized statement of any deductions made from the deposit. Failure to comply with deposit return deadlines can result in penalties and the forfeiture of the landlord's right to claim deductions.
Read the complete guide▶What are the Michigan rent increase laws and caps for landlords?
Michigan has specific rules governing when and how landlords can increase rent. During a fixed-term lease, rent generally cannot be increased unless the lease explicitly allows it. For month-to-month tenancies, landlords must provide proper written notice before an increase takes effect. Check whether Michigan has any local rent control ordinances that may impose additional caps or requirements.
Read the complete guide▶What is the grace period for late rent in Michigan?
Michigan has specific rules regarding grace periods for late rent and the amount that can be charged as a late fee. Late fee provisions must be stated in the lease agreement, and fees must be reasonable. Check Michigan state law and any applicable local ordinances for the exact grace period and late fee limits that apply to your rental property.
Read the complete guide▶What disclosures must Michigan landlords provide to tenants?
Michigan landlords must provide certain disclosures to tenants before or at the time of lease signing. Common required disclosures include lead-based paint hazards (for pre-1978 buildings, a federal requirement), the identity of the landlord or property manager, and any known material defects in the property. Additional state-specific disclosures may include flood risk, mold hazards, and environmental conditions.
Read the complete guide▶What are the Michigan lease requirements for rental properties?
Michigan recognizes both written and oral leases, though written leases are strongly recommended for terms longer than one year. Lease agreements should include the rent amount, payment due date, security deposit terms, maintenance responsibilities, and rules regarding entry, pets, and subletting. Certain lease clauses that waive tenant statutory rights may be void and unenforceable under Michigan law.
Read the complete guide▶What are Michigan landlord maintenance obligations and habitability standards?
Michigan landlords must maintain rental properties in a condition that is fit for habitation and complies with applicable building, housing, and health codes. This includes maintaining structural integrity, plumbing, heating and cooling systems, electrical systems, and pest control. Tenants typically have the right to request repairs in writing, and if repairs are not made within a reasonable time, tenants may have legal remedies available.
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