Subtenants and Security Deposits

The last master tenant moved out of my unit and is asking me to return the security deposit. I know I have 21 days to return it, but I just sent a market-rate rent increase notice to the subtenants residing in the apartment, to which they have 60 days to respond. I’m wary of returning the security deposit because what if the subtenants decide to move out, and I find I should have withheld the security deposit due to damages. How can I protect myself?

Owners need to understand that re-setting the rent under Costa-Hawkins is simply a continuation of the prior tenancy with a new monthly rent and, arguably, additional master tenants as subtenants become elevated to co-master tenancy status when the rent increase notice is served.  The original master tenant does, however, remain a party to the lease agreement and, as such, must be named in any notices of rent increase or other communications from the landlord.  In essence, the lease continues without interruption, no new lease is signed unless the remaining occupants wish to do so, and the initial security deposit remains entirely with the ownership.

Therefore, in this scenario, the security deposit is not returned in whole or in part.  When everyone vacates, the security deposit disposition process begins, with amounts potentially deducted for unpaid rent, cleaning costs incurred to return the apartment to same level of cleanliness that existed at the inception of the tenancy, and repairs for damages that exceed normal wear and tear.  Any remaining sums are then returned to the original master tenant.

The SFAA Residential Tenancy Agreement speaks to this issue:  “The eventual return of the Security Deposit upon termination, and interest payments if any are required, will be directed solely to the [original] Tenant as named herein.”  The lease also reminds original master tenants that legally they continue to be liable even when they depart:  “Each person who signs this Agreement, whether or not said person is or remains in possession of the Premises, shall be jointly and severally responsible and liable for the full performance of each and every obligation of this Agreement, including, but not limited to, the payment of all rent due and the payment of costs to remedy damage to the Premises, regardless of whether such damage was caused by Tenant, Tenant’s guests, or Tenant’s invitees. This joint and several liability provision applies for as long as any one of the Tenants remains in possession or for as long as any of their subtenants remain in possession.”

So remember, departed master tenants are still parties to the lease agreement even though they no longer permanently reside in the apartment.  Incidentally, the Rent Board now takes the position that a master tenant may return at any time, and that continuous occupancy is not mandated under law.  Rent may be adjusted under Costa-Hawkins when the last original occupant no longer permanently resides in the dwelling, but that event neither requires disposition of the security deposit nor changes the other covenants in the lease agreement other than perhaps the amount of rent due each month.  Once all persons move out, the security deposit is returned to the original lessees unless they have instructed you to do otherwise.

DW

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