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Return of Security Deposit

Return of Security Deposit

As noted in my prior blog entries, commercial landlords are aggressive about passing through costs to tenants.  Landlords arguably have become too aggressive and pass-through charges inappropriately.  In the security deposit context, this means that landlords are trying to claim damages beyond ordinary wear and tear at the end of the lease term, and landlords are combing the lease documents for other ways to keep the security deposit.  In my practice, I have seen landlords withhold security deposits for borderline reasons, including: (1) past due late charges and interest from late rent payments dating back over a year, where the landlord never invoiced or notified the tenant of the landlord’s intent to collect such charges; (2) charging the tenant for storage and removal of personal property items despite the landlord’s oral agreement to accept such items at lease termination; and (3) the landlord’s determination of reasonable reserves for actual operating expenses, which may be calculated within 90 days after the end of the calendar year (meaning the landlord can hold the security deposit for a very long time).

As a result of commercial landlords’ tactics for withholding of security deposits, tenants are left without recourse except to sue the landlord for wrongful withholding of the security deposit.  Most often, the amount of the security deposit is too low to justify hiring an attorney to initiate a lawsuit for recovery.  So, tenants write angry letters to their landlord, negotiate and settle for less.  There is little disincentive to landlords to wrongfully withhold a security deposit.

In the residential context (in Arizona), a landlord that wrongfully withholds a security deposit may be liable for damages equal to double the wrongfully withheld amount.  See A.R.S. 33-1321(E).  This helps dissuade residential landlords from wrongfully withholding security deposits, or from withholding based on questionable reasons.

In addition to requiring a final walkthrough (as noted here: http://rrlawaz.com/2010/10/final-walkthrough/), commercial tenants should negotiate for double damages for the wrongful withholding of the security deposit. Doing so will aide the tenant in collecting its deposit at the end of the lease term.

Prior to using any language or concepts from this blog entry, consult with an attorney.

Ryan Rosensteel is a real estate and construction attorney licensed in Arizona.  You can contact him at rrosensteel@rrlawaz.com.

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