Your Holding Deposit Just Got Stronger: How Oregon’s HB 3521 Forces Landlords to Refund When the Unit Isn’t Habitable

Jun 25, 2026 | Insights

a person sitting across a desk from another person holding a stack of bills illustrating a holding deposit that can be refunded under Oregon's HB 3521 law.

Starting January 1, 2026, Oregon’s HB 3521 added another important rule landlords need to understand, especially when it comes to holding deposits and habitability issues. The short version of the law is simple: If a renter pays a holding deposit and later discovers major habitability problems with the unit, they now have a legal path to back out and demand their money back. Landlords who fail to refund the deposit within five business days could end up paying a penalty equal to the greater of the deposit itself or another agreed-upon amount.

For tenants, this creates stronger protections against unsafe housing. For landlords, it raises the stakes on making sure units are truly move-in ready before accepting any money to hold them.

What HB 3521 Actually Changes

Under Oregon law, a holding deposit is money paid by an approved applicant to reserve a rental before the lease is officially signed. Oregon’s HB 3521 tightens the rules around how those deposits work.

Beginning in 2026:

  • Landlords can only collect a holding deposit after approving the applicant.
  • Landlords must provide written disclosures explaining the terms of the deposit.
  • Applicants can cancel and request a refund if they discover material habitability defects.
  • Refunds must be issued within five business days.
  • Failure to comply can trigger financial penalties.

This law focuses heavily on the condition of the property. If a landlord offers a unit that turns out to have serious safety or livability issues, the applicant is no longer stuck hoping the landlord voluntarily returns the money.

What Counts as a Habitability Defect Under HB 3521?

This is the question we expect landlords and tenants to ask most often. HB 3521 ties these protections to Oregon’s existing habitability standards under ORS 90.320. In plain English, the defect has to be serious enough that the home isn’t reasonably safe or livable.

Examples may include:

Minor cosmetic problems usually won’t qualify. Scuffed paint, worn carpet, or a sticky cabinet drawer probably won’t support a refund demand under HB 3521. The issue needs to materially affect habitability.

Timing Matters Under the New Law

HB 3521 doesn’t give applicants an unlimited window to change their minds. The applicant must notify the landlord in writing within five business days after discovering the defect. That written notice is critical. A phone call or casual conversation may not be enough if the dispute later ends up in small claims court.

We recommend tenants keep the process extremely clear and documented. A written email creates a timestamp and paper trail that can help protect everyone involved.

A good notice should include:

  • The address of the rental unit.
  • The date the defect was discovered.
  • A description of the issue.
  • A statement that the applicant is withdrawing due to habitability concerns.
  • A request for a full refund of the holding deposit.

Clear communication reduces confusion and lowers the odds of a prolonged dispute.

Documentation Is Everything

At Rent Portland Homes Darla Andrew’s Office, we always tell landlords the same thing: documentation wins disputes. That advice now applies just as strongly to applicants.
If a tenant discovers a serious problem before move-in, they should document it immediately. The more evidence they have, the easier it becomes to enforce their rights under HB 3521. Helpful documentation may include:

  • Photos with timestamps.
  • Videos showing the condition.
  • Emails or text messages with management.
  • Inspection reports.
  • Utility shutoff notices.
  • Witness statements.
  • Screenshots of maintenance conversations.

For example, if the heat doesn’t work in January, a tenant should photograph the thermostat, document indoor temperatures, and save all communication with the landlord. If there’s a major leak, video footage showing water intrusion can become powerful evidence.

Landlords should be doing the same thing on their side. Pre-move-in inspections, maintenance records, contractor invoices, and move-in photos may help show that a property was habitable when offered. You can never have too many photos.

The Refund Deadline Is Short

One of the biggest changes in HB 3521 is the shortened timeline. Once the landlord receives proper notice, the holding deposit generally must be returned within five business days unless an act of God prevented the refund.

Some landlords still operate with informal systems or handwritten records. That creates risk under the new law because delays can become expensive quickly. If a landlord misses the deadline without a legally valid excuse, the applicant may recover:

  • The original deposit.
  • A penalty equal to the greater of the deposit or another agreed amount.

A $1,500 holding deposit could suddenly become a $3,000 problem. That’s why professional systems and fast communication matter more than ever in Oregon property management.

Why This Law Especially Matters in Portland

Portland already has some of the country’s most tenant-focused rental regulations. HB 3521 adds another layer to an environment where compliance mistakes can become costly fast.

Many DIY landlords underestimate how strict Oregon’s rental laws have become. They assume a holding deposit automatically becomes nonrefundable once an applicant changes course. That assumption can now backfire badly if the unit has legitimate habitability defects.

Our team here at Rent Portland Homes Darla Andrew’s Office expects this law to push landlords toward better pre-listing inspections. Smart property owners will want maintenance problems resolved before advertising the unit or accepting deposits. In practice, that’s good for everyone involved.

Practical Advice for Landlords

For landlords, the best defense is preparation. Most holding deposit disputes are avoidable when the property is genuinely ready for occupancy, and communication stays professional. Before collecting any holding deposit:

  • Complete a habitability walkthrough.
  • Confirm utilities and appliances work properly.
  • Address safety concerns immediately.
  • Provide all required written disclosures.
  • Keep organized records.
  • Respond to refund requests fast.

We see Oregon’s HB 3521 as another sign that rental housing providers need tighter systems, cleaner documentation, and proactive maintenance practices. The landlords who adapt early will avoid costly mistakes and create smoother experiences for tenants at the same time. If you’d like a helping hand getting your property up to speed with modern regulations, we’re here to help: just call (503) 515-3170.