Security deposit issues

A 2015 court decision makes it clear that language in a lease cannot override the provisions of the Missouri security deposit statute. This post covers how this ruling may affect landlords and property managers. See our Security Deposits page for general information about deposits.

In Younker et al. v. Investment Realty, Inc., decided in February 2015 by the Missouri Court of Appeals, the court stated (emphasis added):

Section 535.300 was enacted for the protection of both the landlord and tenant, is conducive to the public good, provides the tenant his exclusive remedy for the wrongful withholding of a security deposit, and is to be liberally construed to effect that purpose. …

… section 535.300 also indicates an intent by the legislature to control a consumer relationship in a manner such that the requirements of the statute designed to protect a tenant’s interests cannot be contractually defeated by a landlord who may be in a superior bargaining position and with whom the tenant is not on equal footing. The legislature correspondingly protected the landlord’s interests in this type of consumer transaction, however, by exclusively limiting a tenant’s recovery for any violation to not more than twice the security deposit amount.

What this means is that if a lease contains provisions relating to a security deposit that are not in accordance with the statute, those provisions will be invalid and unenforceable. Further, such invalid clauses can lead to litigation results unfavorable to the landlord.

Under the security deposit statute, 535.300, only three types of monetary amounts may be deducted from a security deposit:

  1. Unpaid rent
  2. Damage to the premises beyond ordinary wear and tear
  3. Compensation for actual loss sustained by the landlord as a result of the tenant’s failure to give adequate notice to terminate the tenancy pursuant to law or the rental agreement

At least two types of typical lease clauses relating to security deposits are therefore invalid and should not be included in leases:

  1. Clauses that provide for deductions from security deposits in specified amounts for particular repair/replacement items. This is because you must be prepared to show that particular items are damaged beyond ordinary wear and tear and that the amounts charged are reasonable amounts based on the actual costs and not some arbitrary amount.
  2. Clauses that allow a security deposit refund for multiple tenants to be paid to only one tenant. This is because you have an obligation to refund to each tenant who paid, and you cannot guarantee that issuing one check will result in all tenants receiving what they should unless you issue separate checks.

There may be other provisions in some leases that run afoul of the statute and should be stricken. Your leases should be carefully reviewed by an attorney to ensure compliance with the statute.

Following is the security deposit clause we are currently recommending:

SECURITY DEPOSIT: Upon signing this lease and before being allowed to take possession of the premises, lessee shall deposit with lessor the amount of $___________, to be held as a security deposit for the performance of this lease by lessee. Interest received on the security deposit shall be the property of lessor. The security deposit is not a substitute for the last month’s rent, and lessee agrees to make timely payment of the last month’s rent. Lessor shall be entitled to deduct from the security deposit: (a) All unpaid rent owed through the end of this lease; (b) any unpaid additional charges described in this lease as additional rent; (c) expenses related to repairs, painting or cleaning necessary to restore the premises and furnishings to their condition as at the beginning of the lease, ordinary wear and tear excepted; and (d) $________ which shall be deducted for carpet cleaning unless lessee provides proof that the carpets have been cleaned by a professional carpet cleaning company acceptable to lessor at or near the time lessee vacates the premises. Lessee agrees to be liable for all such charges that exceed the security deposit. Lessee is notified that there may be a larger deduction from the security deposit for carpet cleaning than specified above if more expensive carpet cleaning is required because of carpet conditions beyond ordinary wear and tear. Lessee agrees to follow any written move-out instructions provided by lessor. Lessor will give lessee reasonable written notice at lessee’s last-known address, or in person, of the date and time when lessor will inspect the premises to determine the amount of the security deposit to be withheld, if any, and lessee will have the right to be present during inspection. Any statements or estimates made by lessor or lessor’s representative during inspection are subject to correction or modification before final security deposit accounting. Pursuant to law, within 30 days after termination of this lease, lessor will mail to lessee, at lessee’s last-known address, a written itemized list of charges withheld from the security deposit (if any), a copy of the carpet cleaning receipt, and the unexpended portion of the security deposit (if any). Lessee must provide a forwarding address; if no forwarding address is provided, lessee agrees that the inspection notice, itemization of charges (if any), carpet cleaning receipt, and refund (if any), may be mailed to the address of the premises. If more than one lessee signed this lease and paid a security deposit, all deductions from security deposits shall be pro-rated according to the amount of the deposit paid by each lessee, and a separate accounting and refund (if any) shall be sent to each lessee. If lessee vacates the premises on or after the termination date of this lease, the 30-day period to account for the security deposit shall begin only when all of lessee’s property has been removed, all occupants have departed, and all keys and other access devices (such as garage door openers) have been delivered to lessor. If lessee abandons the premises before the termination date of this lease, the 30-day period to account for the security deposit shall begin on said termination date or the date lessor re-rents the premises, whichever is earlier.

While it is going to be more work for landlords to issue separate security deposit refunds when there are multiple tenants, we believe it must be done. Here’s an example of how it would work to pro-rate the deposit refunds: Let’s say you have a $1,000 total deposit of which $250 was paid by each of four tenants. Therefore, each tenant paid 25% of the total deposit, and 25% of the deductions should be deducted from each tenant’s refund check.

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