Security Deposits: When the Tenant Objects and the Owner Insists

Florida Statutes (FS) 83.49 prescribes the procedures on how to handle security deposits (“deposit”) held pursuant to a rental agreement. You likely know already that you must notify the tenant of where the deposit is held; you may not commingle the deposit with your own funds; you cannot treat the deposit as “liquidated damages” unless allowed by statute; you must make a claim on the deposit within 30 days of the tenant vacating by certified mail to the tenant’s last known address; and the tenant has 15 days to object in writing to the claim. But bumps in the road do happen, and they can be created by the property owner.

Under most circumstances, you have collected your evidence (photos, video, receipts, invoices, move-in/move-out forms), and you are confident that if the tenant objects, he is “wrong” and that if this were taken to court, you would “win.” However, there may be times where the owner has visited the property after move-out or has been given permission to make the repairs himself. The owner submits to you the damages that he feels you should claim on the deposit.

A problem arises: you do not agree with the owner’s claims and/or you do not have enough evidence to prove the value or existence of the damages in court. So what do you do?

If you give the deposit back to the tenant, you may lose a client, and you do not feel you can give the deposit owner under FS 83.49. The quandary for the Manager is that FS 83.49 does not address what the Manager is supposed to do at all in this situation.

FS 83.49:

(1) tells the Manager how he is supposed to hold the deposit:
(2) tells the Manager how long he has to inform the tenant of how and where he is holding the deposit;
(3) tells the Manager how he is to make a claim on the deposit and how the tenant is to object, including the conditions and limitations of making claims and objects;
(4) excludes certain situations (e.g. transient rentals);
(5) exempts the Manager from having to make a claim on the deposit under certain conditions;
(6) considers a lease renewal to be a new rental agreement for deposit purposes; and
(7) describes what the Manager is to do with the deposit with a “new owner” or “new agent”.

The Landlord-Tenant Act does describe what the Manager must do with the deposit when the tenant objects. Even worse is when the Manger may not have the evidence he feels is sufficient to hold the deposit because of the owner’s involvement. What should the property manager do? Consider some of the following in making this decision:

First, just because the tenant objects does not mean the tenant actually believes his objection is valid. There could be other motivations and purposes. Second, when a tenant timely objects, and you have sufficient evidence and confidence concerning your claim, what is a better decision for you?

Whether you keep the deposit in trust or apply the money towards the claimed damages, the effect is the same: you are denying the tenant of his objected-to money. If the tenant sues you or the property owner for the deposit and wins in court, you and/or the property owner will be held responsible either way. So what is the better real-world decision?

The above situation does not completely address the scenario where the owner insists on using the deposit, even though you do not agree with the owner. Since you are the agent, the owner’s will becomes your will, unless you make a couple of decisions: (1) you inform the owner that you will not make the claim on the deposit as the owner insists and that the owner can either fire you or accept it. In such a case, you have to make such a business decision, because you also have a good faith obligation under FS 83.44. (2) The other decision you can make is turn the security deposit matter completely over to the owner, making the owner the “new agent” under FS 83.49(7).

In this scenario, you and the owner should sign an agreement releasing your from responsibility and authority regarding the deposit issues on that (or all) property. If you are not the “agent of the landlord” for deposit issues, then you are not obligated to handle any deposit matters on behalf of the owner. As a part of this process, you must comply with FS 83.49(2) and inform the tenant within 30 days of where you are transferring the deposit and that you are no longer the owner’s agent with regard to the security deposit issues on that property and that the tenant must address the matter directly with the owner.

Note: expect that if the tenant hires an attorney, the attorney may call you as a witness to support the tenant’s defense, and you would inevitably have a conflict of interest with the owner, which will likely end your relationship with the owner.

Some property managers believe that where the tenant objects and the owner/manager does not concede the objection, that such matter must go through FREC procedures, etc. However, FS 83.49(3)(d) is clear with regard to deposit matters in landlord-tenant contracts:

Compliance with this section by an individual or business entity authorized to conduct business in this state, including Florida-licensed real estate brokers and sales associates, shall constitute compliance with all other relevant Florida Statutes pertaining to security deposits held pursuant to a rental agreement or other landlord-tenant relationship. Enforcement personnel shall look solely to this section to determine compliance. This section prevails over any conflicting provisions in chapter 475 and in other sections of the Florida Statutes, and shall operate to permit licensed real estate brokers to disburse security deposits and deposit money without having to comply with the notice and settlement procedures contained in s. 475.25(1)(d).
This section clearly stands for the proposition that all legal issues relevant to security deposits in a landlord-tenant relationship shall be construed under FS 83.49.

Since this is true and since FS 83.49 does not address specifically how a Manager is to handle the deposit after the tenant objects, the above-analysis should be considered by the Manager when handling these types of deposit matters. Even FREC has issued their opinion on the matter (See Exhibit A below), and they have reached a similar conclusion. The alternative choices are to file lawsuit seeking a court order to permit you to claim the deposit or let the money sit indefinitely.

As a practical matter, Managers should keep property owners out of managing the property entirely because of the potential conflict of interest created, and keep your landlord-tenant attorney by your side at all times there is a hint of a question about these scenarios. Preventing is a much better choice than repairing.

EXHIBIT A

FREC ON ‘ESCROW DISTRIBUTION’

At its February meeting, the Florida Real Estate Commission clarified the authority of brokers to disburse “security deposits” and “deposit money” held in the broker’s escrow account when collected as part of a residential landlord and tenant relationship. Read more: http://www.floridarealtors.org/NewsAndEvents/n7-022709.cfm

FREC clarifies broker authority

The Florida Real Estate Commission (FREC) clarified the authority of brokers to disburse certain funds held in the broker’s escrow account collected as part of a residential landlord and tenant relationship when there is a conflict over distribution.

At its February 2009 monthly meeting, FREC issued an interpretation to section 83.49(3)(d) of the Residential Landlord and Tenant Act. According to the interpretation, brokers holding a “security deposit” or “deposit money” in escrow as part of a “contract to lease” (also called a memorandum or agreement to enter into a lease) may disburse the funds at the broker’s discretion when faced with conflicting demands from the landlord and tenant. Previously, brokers who disbursed such funds when faced with a dispute risked being charged by FREC with violating the real estate license law.

The specific issue addressed by FREC was: Does a “contract to lease” create a “landlord-tenant relationship”? Under section 83.49(3)(d) a “rental agreement or other landlord- tenant relationship” must exist in order for the broker to have the authority to disburse security deposit/deposit money if there is a dispute. The Residential Landlord and Tenant Act defines a rental agreement as “any written agreement, or oral agreement for a term of less than one year, that provides for use and occupancy of the premises” – but the Act does not clearly define what creates a “landlord-tenant relationship.”

In its interpretation of 83.49(3)(d), FREC determined that a “contract to lease” does create a “landlord-tenant relationship.” According to FREC, any verbal or written contract to lease, agreed to by landlord and tenant, constitutes a landlord-tenant relationship, even if the tenant does not take occupancy.

While disbursal of escrow money in this case without following the notice and settlement procedures of chapter 475 will no longer be considered a violation of real estate license law, brokers are still civilly liable for escrow money if it’s wrongfully disbursed. If the broker isn’t sure who is entitled to the escrow funds, the broker does not have to disburse the funds.

Questions? Contact FAR’s Legal Hotline at (407) 438-1409.