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.

Transcript

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.

California Attorney and Real Estate Broker Chris Adishian answers the question, “What if my commercial Landlord wrongfully refuses to refund my security deposit?” at the South Bay Association of Realtors event, “Commercial Attorney Panel-Hot Legal Issues for Commercial Real Estate” on March 5, 2014.

Transcript:

Question: “What if my Landlord refuses to give back my security deposit? What do I do?”

Answer: “Well that’s a common question too. We had a case like this, and we very rarely go into limited jurisdiction. So the court system is organized still there’s small claims, which is $10,000 and below; there’s limited, which is $10,000-$25,000; and then there’s superior, which is $25,000 and over. In the nearly 11 years that I’ve been practicing law, I think we’ve been in limited twice and usually we just say, ‘Hey look, work it out with them.’ It’s not really a place where we put a lot of our time and energy.

But this tenant came to us and he had a good case. He was a commercial tenant and he said, ‘Look, I had a (I think it was) $12,000 deposit with this guy and it was 2 years ago the lease ended, he’s not paid me back.’ So I’m like, ‘Alright, let’s send him a letter.’ So we sent him a letter and the Landlord came back with all this stuff which amounted to a bunch of nonsense, and he said, ‘Well here’s $2,000.’ And the tenant’s like, ‘I don’t want $2,000.’ So long story short, back and forth, back and forth, and the Landlord eventually got up to $10,000. And our tenant, to his credit, he said, ‘He shouldn’t keep a dollar. I literally left the place in perfect condition under the lease.’ So after a while, we filed a lawsuit. The end of the story is: about a month after we filed the lawsuit, the Landlord ended up paying all the security deposit, which I think again was $12,000 or $14,000, all of our attorney’s fees, 3 years of interest at 10% a year, and all the costs.

So you know, it’s a feel-good case for us on the law side, but from a Landlord’s side it’s a very good lesson because at the end of the day, he ended up paying about double,

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$12,000 versus $24,000, because of really just sort of bullheadedness and intransigence. I mean, we laid the law out to him and the facts were clear, but fortunately actually I commend his attorney because probably after he started getting his attorney’s bills, the attorney’s like, ‘Well I’m not going to work for free.’ And he probably said, ‘What do you recommend?’ And he’s like, ‘I recommend you pay him,’ because the statutes are very clear what the penalties are, and there really was no reasonable argument in opposition.”

About Adishian Law Group, P.C.

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of March 2013, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 4 States outside of California and 9 foreign countries — in over 340 legal matters.

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