Section 383.580 deals with tenant security deposits. The first part of that section requires a landlord to deposit and maintain all tenant security deposits in a separate dedicated bank account, in the nature of an escrow.
"Security deposit" means an escrow payment made to the landlord under the rental agreement for the purpose of securing the landlord against financial loss due to damage to the premises occasioned by the tenant's occupancy other than ordinary wear and tear.Tenants are to be informed of the bank and account number.
"All landlords of residential property requiring security deposits prior to occupancy shall be required to deposit all tenants' security deposits in an account used only for that purpose, in any bank or other lending institution subject to regulation by the Commonwealth of Kentucky or any agency of the United States government. Prospective tenants shall be informed of the location of the separate account and the account number."
Normally, the security deposit is held by the landlord until the end of the tenancy when it is applied to repairs for damage caused by the tenant or retained for unpaid rent, EXCEPT:K.R.S. §383.580(1)
"No landlord shall be entitled to retain any portion of a security deposit if the security deposit was not deposited in a separate account as required by subsection (1) of this section and if the initial and final damage listings required by subsections (2) and (3) of this section are not provided."
Although the URLTA was made a local option nearly thirty years ago, and it has been adopted by many municipalities across the Commonwealth since then, the woods are not full of Kentucky case law discussing K.R.S. § 383.580. In fact, so far, I have located exactly nothing. But, the part where it says, ""No landlord shall be entitled to retain any portion of a security deposit if . . . . " is not quite the same as saying the landlord is obligated to return it to the tenant. I'm inclined to put the conceptual emphasis on the idea of entitlement, and not so much on retention.K.R.S. §383.580(4)
If the conditions of the URLTA are not met, the landlord continues to hold the money in trust with all that entails, whatever that is.
Part (2) of K.R.S. § 383.580 requires the landlord to provide the tenant a "comprehensive listing of any then-existing damage to the unit which would be the basis for a charge against the security deposit and the estimated dollar cost of repairing such damage," at the beginning of the tenancy. The tenant then has the option of agreeing to the landlord's list of preexisting damage and estimated repair costs or dissenting, in writing. This process is repeated at the end of the tenant's occupancy, as provided in part (3) of the section. If the landlord and the tenant agree as to the extent and repair cost of damage caused during the tenancy, then the landlord would clearly be justified under the URLTA in removing the agreed dollar amount from the escrow account and and retaining that sum free of tenant's claim. "A tenant who disputes the accuracy of the final damage listing given pursuant to subsection (3) of this section may bring an action in District Court." K.R.S. § 383.580(5), except "if the tenant shall fail to sign the listing or specifically dissent in accordance with subsection (3) of this section.[§ 383.580]"
Holding security deposits in escrow under the URLTA is a big responsibility. It's not the landlord's money. The security deposit is being held in trust and any misappropriation of funds by the landlord might amount to theft by embezzlement. The URLTA expressly states the landlord is not "entitled to [summarily] retain any portion of a security deposit" as her own if it is not deposited in a separate dedicated bank account or if the beginning and ending signed written damage inventories are not provided.
Parts (6) and (7) of § 383.580 provide for the landlord applying the excess remaining security deposit to unpaid rent after thirty days, and for retaining the unearned balance of the security deposit if the tenant does not claim it within sixty days after the landlord sends reasonable notification to the tenant.