Security deposits in real estate transactions are often overlooked until the last minute. On larger buildings however, security deposits in real estate transactions can often be tens of thousands or hundreds of thousands of dollars.
Here, California Attorney and Real Estate Broker Chris Adishian answers the question, “When buying a multi-unit property do the security deposits transfer from Seller to Buyer?” at the South Bay Association of Realtors Commercial Attorney Panel on June 2, 2015.
This is one of those issues. It’s not a big issue, but it’s a frequent issue. And it’s one of those issues at the margin in a transaction.
Say you’re going to buy a nine or ten unit building, you’ve negotiated all the deal points, you’re into escrow, and all of a sudden you’re like, “All the tenants paid security deposits, where are those?” It might swing 30 to 100,000 to one side of the table or the other.
So, I think the answer to the question is, it’s a negotiating point, but make sure that you do negotiate it and you factor it into your offer of your purchase price. And again, depending on the dollar amount, depending on the nature of the parties, once the transaction closes, even if you were supposed to get the security deposits but you didn’t focus on it and make sure they crossed the table – well now you have a claim. Okay, well then what’s it going to take to enforce that claim?
Probably not a huge percentage of the deal, but then again you’d rather have the money than not have the money. And you don’t want to get into a situation where you’ve made an offer presuming you’re going to get the security deposits, only to find that the seller’s going to keep them. So it’s sort of a fine point in negotiating a sale.