Payment of Security Deposits in the Event of a Residential Tenant's Breach of Lease

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

As an attorney who regularly provides advice, counsel and representation to residential property managers and owner/landlords, issues and disputes surrounding accounting-for and refunding a tenant's security deposit present themselves just about every week.

Security deposit disputes take various forms, including the following (to name a few):

• the landlord's alleged failure to timely account for/refund the deposit;
• allegedly unreasonable deductions by the landlord for damages to the rental property;
• treatment of a tenant's security deposit (by the Tenant) as "last month's rent;" 
• failure by the tenant to provide a forwarding address in writing; and 
• use of the security deposit by the landlord to satisfy the Tenant's rent obligations under the Lease.

Various statutes contained in Chapter 92 of the Texas Property Code are implicated in competing claims for payment of security deposits. Specifically, Property Code Sections 92.102, 92.103, 92.104, 92.1041, 92.107 and 92.109 (together with the written Residential Lease Agreement) guide the parties rights to the deposit.

In my experience, many of the most contentious security deposit disputes arise when a tenant has surrendered the property prior to expiration of the Lease term (for whatever reason), and has also provided the landlord (or his property manager) written notice of their forwarding address.  In these instances, there are 2 competing concerns and 2 very different sets of expectations.

It is axiomatic that most tenants expect to receive a refund of all or most of their Security Deposit. However unrealistic this expectation may be, and perhaps primarily because of the expense associated with moving, Tenants are largely emotionally invested in the Security Deposit.  However, when a tenant has vacated the property during the Lease term (as opposed to at the need of the term) and/or when a rent balance remains under the Lease, and perhaps primarily because of the expense associated with vacancy in a rental property, Landlords are also largely emotional about security deposits.   These competing emotions tend to limit the desire of the parties to compromise, thereby creating fertile breeding ground for rancorous disputes.

The law clearly provides that a tenant who surrenders the property at a time when an undisputed amount of rent is owed is not entitled to an accounting (i.e. an itemized list of deductions from the security deposit) or a refund of the Security Deposit. See Texas Property Code Section 92.104(c).  The fact that a tenant has provided a written forwarding address in compliance with Texas Property Code Section 92.107, does not obviate Section 92.104(c) or otherwise impose upon a Landlord to whom an undisputed amount of rent is owed any obligation to account or refund.

The most distasteful (to me) security deposit cases arise when a tenant solicits and receives an agreement from the landlord to terminate the Lease early, and then seeks statutory damages and penalties under Texas Property Code Section 92.109, when the landlord fails to account and/or refund within 30 days. Unfortunately, however, tenants can, and sometimes do, prevail in such cases if the agreement to terminate also dispenses with the Tenant's obligation to pay rent under the Lease.  That is, the Landlord's agreement to terminate the Lease early and waive future rents from the tenant makes Section 92.104(c) inapplicable, and instead, implicates Sections 92.103 and 92.104(a).

Confused yet?  The statutory scheme is admittedly tricky, and a landlord's slip-up can result in costly penalties (including an award of attorneys' fees and costs to the tenant). Thus, a landlord or property owner who is unsure of his or her obligation to account for and/or refund a tenant's security deposit is well advised to contact an experienced real estate lawyer.  Also, check out my blog post on Security Deposit FAQs from September 2008.