Dealing with Deposits for Franchise Tenants

Supplying a deposit to a commercial landlord is one thing; getting it back is another matter entirely!

Readers of our book, Negotiating Commercial Leases & Renewals For Dummies, will learn that most landlords don’t mark their calendar with a date to return your deposit. In fact, most landlords would be quite happy if you never brought up the subject again. Business owners often contact us months after moving out and ask why their landlord hasn’t refunded their deposit. We usually start with asking, “Have you asked for the money back yet?”. The answer is often, “No”. So, we begin with the basics; you have to ask to receive.

We recommend that you ask your property manager about the landlord’s process for refunding deposits three to four months before your lease expires. Ask these questions:

• How much deposit do your records indicate the landlord is holding for the tenants?
• Does the landlord require a request letter or an invoice?
• On the last day of the lease, will there be an exit viewing and walk-through of the premises to ensure no damage?
• What should I do to get my full deposit back? Should I have the carpets cleaned, surrender the keys, restore the premises or leave in broom-swept condition?

Landlords have many reasons why they can’t or won’t return your security deposit. These include the following:

• You damaged the premises.
• You didn’t remove your leasehold improvements.
• You removed leasehold improvements that the landlord wanted you to leave behind.
• You owe Common Area Maintenance (CAM) charges for that year.
• You did leasehold improvements to the premises without landlord knowledge or consent.
• You have subleased or assigned the lease agreement without landlord consent.
• The landlord may have whittled away at your deposit over the years for small rental incidentals or items invoiced to you that you didn’t pay.
• If your building has been sold since you first leased, the new landlord may claim that he doesn’t have your deposit because the previous landlord never passed it along.

If the landlord acknowledges that he has your deposit, check your lease agreement. It may state the amount of time the landlord has to refund your deposit. If not, ask for a refund within ten days of your invoice to the landlord.

• You may encounter difficult circumstances with getting your deposit back. In this case, following your invoicing the landlord in writing, call the landlord’s accounting department and ask how the deposit return will be handled and if there will be a delay. If your deposit refund will be stalled, you can do one of the following:
• If the landlord is holding back your deposit to cover damages, you have to wait until repairs are completed so the landlord can determine the total cost. After the repairs are finished, you may receive a statement of account and any monies dues at that time – if any money is left.
• If the landlord is experiencing a cash flow problem, you may want to obtain a legally enforceable payment plan in writing from the landlord. Getting your money back over a period of time is better than not getting back any money at all.
• Lawyer up: This process could be long, drawn-out, and expensive if it eventually goes to court.
• File a small claim action against the landlord (depending on the jurisdiction).