What is the law as it relates to the sale of a rental property and security deposits?
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What is the law as it relates to the sale of a rental property and security deposits?
I recently sold a rental property. It is a 3-unit building with 3 tenants. We closed last week. The new owners had the closing company call me to ask for the security deposits the following 2 days ago. Wasn’t this to be taken out at closing? Do the new owners have any legal right to assume I’ll pay them this money after we closed on the property? I took a loss on the sale. I would have negotiated this in the deal prior to our close. What should I do?
Asked on August 25, 2011 Pennsylvania
Answers:
FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney
Answered 12 years ago | Contributor
Usually in the sale of commercail rental property the real estate agents who are involved have the seller and his or her tenants sign document called "tenant estoppel certificates". These documents are then given to the buyer before close. They show what the security deposits are, the monthly rent, the term of the lease, and any problems with the units being sold.
Typically as part of custom and practice the security deposits of the tenants held by the selling owner are placed in escrow and transferred to the new owner. This is not always the case. You need to read carefully the pruchase agreement, all counter-offers, addendums and escrow's final closing instructions signed by the buyer and the seller. These documents should set forth the obligations for transferring the security deposits.
Technically, since the security deposits are placed by the tenants as "security" for damages and other issues regarding the rented property and you no longer own the rented property, the security deposits should be transferred to the new owner by you with signed written receipts showing that this was done.
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