Don't Illegally Withhold Tenant's Security Deposit

Facts: A tenant and an owner entered into a five-year lease, and the tenant made a $10,000 security deposit. Three years into the lease, the tenant approached the owner, wanting to transfer its lease to another business owner. The owner refused, and the tenant and the new business owner signed a new lease with the owner. The new lease allowed the new business owner to take over the space, but the tenant remained partly responsible for the space. After the tenant’s portion of the lease term ended, it contacted the owner and requested the return of the security deposit. The owner did not respond and kept the security deposit. Approximately one year later, the new business owner vacated the space, and the tenant contacted the owner again and requested the return of its security deposit. The owner did not respond, and the tenant sued, alleging that the owner illegally withheld its security deposit. The trial court ruled in favor of the tenant. The owner appealed.

Decision: A Texas appeals court upheld the lower court’s decision.

Reasoning: The owner has the burden of proving that the retention of any portion of the security deposit is reasonable. To support its position, the owner argued that because the tenant did not properly surrender the premises at the end of its lease term, it was entitled to the use of the security deposit. The court disagreed and stated that regardless of the tenant’s surrender date, there is no dispute that when the new business owner vacated the premises, the obligation to refund or account for the use of the security deposit was triggered.

Source: EDG Property Management v. Karim Ratnani, March 2009