The other day a tenant asked me if the duplex owner would be refunding her damage deposit before the property sold.
Shortly thereafter, a seller asked if he would need to do the same.
The answer in both cases is “no”.
Most real estate investment agents include an addendum to any purchase agreement that asks for any damage deposits and interest they’ve accrued to be assigned to the buyer at closing. In addition, the addendum should include language that assigns the leases to the buyer at closing.
The seller is also not allowed to make any deductions for any damage the tenant may have already caused.
The reasons for this are simple. The tenant is protected by the lease, which survives the sale. Any transfer of a security deposit prior to the end of that lease is a recipe for drama.
For example, what if the seller gives the tenant her money, and she never gives you a deposit? How long will it take to evict her? How will you pay for any damages the property suffers?
What if there never was a damage deposit at all?
And from the tenant’s perspective, what if the seller decides to withhold the entire deposit because of perceived damages that may or may not be there; leaving both you and the tenant in a financial hole?
A properly drafted purchase agreement signed by both the seller and buyer is a legally binding contract and when it comes to leases and security deposits, ensures the protection of everyone involved.