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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