Understanding Oregon’s New Tenant Deposit Protections Under HB 3521

On June 12, 2025, the Oregon Senate passed House Bill (HB) 3521, a measure designed to strengthen tenant protections around holding deposits (commonly called “hold” or “safety” deposits) collected before a lease signing. The legislation will go into effect on January 1, 2026.

While the legislation aims to protect renters who might fall victim to unsafe or misrepresented housing situations, it also places new responsibilities and potential liability on landlords—particularly those operating in Portland’s already-regulated rental market.

HB 3521 Creates New Rules for Hold Deposits

Currently, landlords in Oregon may collect a hold deposit after an application is approved but before a lease is signed. If the landlord fails to honor the deal, they must refund the deposit.

HB 3521 expands this by requiring a refund—and in many cases imposing a penalty—when prospective tenants withdraw due to severe habitability defects (like a leaky roof, inadequate heating, unsafe drinking water, accumulated trash, or nonworking locks) or if the landlord otherwise breaches their commitment.

Moreover, the bill mandates that landlords return the deposit or pay statutory damages within five business days of the tenant’s rejection or landlord noncompliance. If the return is late, landlords may owe a penalty equal to the deposit amount or a larger contractually agreed sum.

Impact on Landlords in Portland

For property owners in Portland, these developments come atop existing deposit rules and tenant protections:

• Deposit limits: While Oregon itself doesn’t cap security deposits, the City of Portland does. A deposit including the last month’s rent can be up to 1.5 months’ rent; if it excludes that, it’s limited to one month’s rent. An additional half-month’s rent may be added only as a conditional approval measure, with installment payments allowed.
• Handling and documentation: Security deposits must be held in a separate trust account, and landlords must provide receipts. If the account earns interest, landlords must pass that money on to tenants (minus a 5% administrative fee), and offer an annual statement upon request.

These requirements paired with the new rules from HB 3521 mean landlords must be especially vigilant during pre-lease stages.

Understanding Normal Wear and Tear vs. Deductible Damages

HB 3521 deals primarily with pre-lease hold deposits, but Portland landlords must also handle regular security deposit returns under detailed statutes:

• Oregon law requires landlords to return the security deposit or supply an itemized statement of deductions within 31 days after tenants vacate and return possession.
• Landlords may not deduct for normal, expected wear and tear. Examples of non-deductible wear include faded paint or carpeting, minor scuffs or nail holes, aged bathroom fixture wear, and loose hardware due to age.
• Landlords may only take deductions for actual damage beyond normal wear, such as large stains or burns in carpets, unauthorized paint colors, sizable holes, broken fixtures, mold, gouged surfaces, or broken windows/doors.

Importantly, landlords must provide a written statement explaining each deduction and document their justification with proof like photos or invoices. If they fail to act within 31 days, tenants can sue for up to twice the deposit amount.

What Happens if a Tenant Disputes You Withholding Their Security Deposit

If your tenant disputes the decision to withhold part or all of their security deposit, the process typically begins with a demand for explanation. Oregon law requires landlords to provide a written, itemized accounting of any deductions within 31 days of move-out. This statement must clearly show the damage and associated charges, supported by receipts, invoices, or other documentation.

If a tenant believes the charges are unfair—for example, deductions made for everyday wear and tear such as faded paint or minor carpet wear—they can first request clarification or additional evidence from the landlord.

If the tenant isn’t satisfied with the result, they may pursue the matter in small claims court. In court, the burden is on the landlord to prove the validity of the deductions. Failure to provide adequate documentation or missing the 31-day deadline can expose you to liability of up to twice the amount of the security deposit, plus potential attorney fees.

For landlords, this underscores the importance of thorough move-in and move-out inspections, detailed record-keeping, and timely communication. Property managers can be invaluable in handling these disputes and minimizing legal risk.

How Property Managers Can Help

In this increasingly regulated environment, property managers can be a landlord’s best asset. Their expertise helps ensure compliance and minimize costly disputes.

1. Streamlined handling of holding deposits: Property managers can establish clear workflows for processing hold deposits. If a tenant rejects the property due to habitability issues—or if you yourself cancel—the manager can promptly trigger a refund within the five-business-day window mandated by HB 3521, avoiding penalties.
2. Accurate documentation and account management: A manager can set up and maintain compliant trust accounts, provide receipts at payment time, track interest, and deliver annual statements as required under Portland law.
3. Detailing wear vs. damage: Property managers can conduct thorough move-in and move-out inspections, note condition discrepancies, gather photographic evidence, and write itemized claims for damage that exceeds normal wear, strengthening landlord positions and reducing disputes.
4. Timely deposit returns: With systems in place, property managers can ensure that they return deposits or required deduction statements within Oregon’s 31-day limit, sidestepping double-damages liability.
5. Education and lease drafting: They can ensure rental agreements clearly spell out what constitutes damage vs. wear, outline deposit handling, and reflect local deposit limits, which reduces confusion and sets realistic expectations for tenants.
6. Risk mitigation for habitability disputes: If a prospective tenant backs out citing habitability concerns, property managers can coordinate inspections, engage maintenance crews, or facilitate communication that may resolve defects early, either salvaging the tenancy or ensuring deposit return compliance.

A Balanced Approach to Compliance and Business Viability

HB 3521 stipulates that renters shouldn’t forfeit hold deposits for conditions beyond their control. But from a landlord’s standpoint, the legislation demands rapid operational response and precise documentation. In Portland, where local regulations already shape deposit policies, the risk of administrative misstep is on the rise.

The answer lies in systems, documentation, and expert support. Property managers serve as internal compliance teams who reduce legal exposure and guide landlords to act not just legally, but efficiently and confidently. At Rent Portland Homes Darla Andrew’s Office, we work hard to ensure your rental is always on the right side of the law. With our expert team handling legal compliance, tenant communication, and the time-consuming process of documentation before and after a tenant moves out, you’ll never have to worry about the stress of handling security deposits again. For more information, call or text us at (503) 515-3170 or contact us through our website.