Commercial Lease Developments:
The New Laws Relating to Security Deposits

Most commercial leases provide for the payment of a security deposit and contain a relatively short provision regarding the application and refund of the security deposit. The Texas Legislature has recently enacted statutory provisions relating to security deposits in commercial leases entered into or renewed on or after September 1, 2001. Landlords may seek to waive the new provisions, while tenants may wish to ensure that they preserve their rights under the statutory provisions.

Landlord's Obligation to Refund the Security Deposit. The new law requires the landlord to refund the security deposit to the tenant not later than the 60th day after the tenant surrenders the leased premises and provides notice of the tenant's forwarding address. The landlord is not required to refund a security deposit until the tenant provides the landlord with a written statement of the tenant's forwarding address for refund purposes (but the tenant does not forfeit its right to the refund for failing to provide a forwarding address). If the landlord in bad faith wrongfully retains the security deposit, the landlord is liable for an amount equal to three times the amount of the deposit wrongfully withheld, plus $100, plus the tenant's reasonable attorneys' fees in a suit to recover the security deposit.

• Suggestion for Tenants: When you vacate leased premises and turn in the keys, you should also provide the landlord with the written statement of your forwarding address — it would be prudent to do this by certified mail, return receipt requested to establish that the statement was given and when.
    

Landlord's Right to Retain the Security Deposit. The landlord is permitted to deduct from the security deposit damages and charges for which the tenant is liable under the lease or that result from the tenant's breach of the lease. The landlord is not, however, permitted to retain any part of the security deposit to cover normal wear and tear. If the landlord retains all or part of the security deposit, the landlord must refund the balance, if any, of the security deposit to the tenant and must provide the tenant with a written description and itemized list of the deductions (unless the tenant owes rent when the tenant surrenders possession of the premises and there is no controversy about the amount of rent owed, in which case the landlord is not required to provide this list). If the landlord in bad faith wrongfully fails to provide the written description and itemized list of deductions, the landlord forfeits the right to withhold any part of the security deposit, forfeits the right to bring suit against the tenant for damages to the leased premises, and is liable for the tenant's reasonable attorneys' fees in a suit to recover the deposit. The landlord is deemed to have acted in bad faith if the landlord fails to provide the list on or before the 30th day after the tenant surrenders possession of the leased premises.

• Suggestion for Landlords: Make it part of your standard procedure when a tenant vacates leased premises to determine immediately if any deductions from the security deposit are appropriate — if you are going to retain all or part of the security deposit, be sure to provide the required description and itemized list (and refund any balance of the security deposit) within this 30 day time frame, despite the 60 day time frame referred to above, so as to avoid the presumption of bad faith.
    

Sale or Transfer by Landlord. If the landlord sells the property or if the landlord's interest is otherwise terminated (e.g., by death or bankruptcy), the new owner (except a mortgagee who acquires title through foreclosure) is liable for the refund of the security deposit as of the date the new owner acquires title. The former landlord remains liable for the security deposit until the new owner delivers to the tenant a signed statement acknowledging that the new owner is responsible for the security deposit and specifying the exact dollar amount of the security deposit.

• Suggestion for Sellers: When you are selling property that is leased, you will want to be sure to include in the contract of sale a requirement that the buyer sign and deliver this statement to the tenants of the property promptly upon closing. You may want to incorporate it in the notice typically given to the tenants that the sale has occurred and that rent is now payable to the new owner.
    

For further information on this topic, please contact Teal Thawley at teal.thawley@strasburger.com or Beth Tiggelaar at beth.tiggelaar@strasburger.com.

     
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