If you withhold any portion of a security deposit, Minnesota law requires that you send a written statement to your tenants within twenty-one days after move-out. Minn. Stat. § 504B.178, subd. 3(a). This statement, known as a 21-day letter, must explain the reason for withholding some or all of the security deposit.
The 21-day clock begins to run at the end of the tenancy or when the former tenant provides you with a forwarding address, whichever occurs later. The 21-day clock is shortened to five days if the rental unit is legally condemned by the local government.
Before the deadline expires, you must return the entire deposit with interest or provide a written statement explaining the reasons for withholding the deposit. You may withhold some or all of the security deposit (1) if the tenant fails to pay rent, or (2) to restore the rental unit to the move-in condition, except for normal wear and tear. Minn. Stat. § 504B.178, subd. 3(b). You should provide sufficient detail in the 21-day letter so that the tenant can understand why you withheld the deposit.
If you fail to return the entire deposit or provide the 21-day letter, you may be liable for twice the amount of the deposit. Minn. Stat. § 504B.178, subd. 4. You may also be liable for an additional $500.00 if a court finds that you have withheld the deposit in bad faith. Id. § 504B.178, subd. 7. As a result, it is important for you to document the reasons for withholding a security deposit by taking photographs or keeping receipts.