Security Deposit Transfer Agreement: Guide for Landlords and Tenants

Introduction

Key Things to Know

1. 1

   Security deposit laws vary significantly by state and sometimes by city, so the transfer agreement should be tailored to comply with local regulations.

2. 2

   The agreement doesn't change the terms of existing leases - the new owner must honor the original lease terms regarding security deposits.

3. 3

   Both buyers and sellers should keep copies of the agreement and related documentation for at least the duration of existing leases plus any statute of limitations for potential claims.

4. 4

   Security deposits must typically be transferred at closing, along with accurate accounting records for each deposit.

5. 5

   Some jurisdictions require security deposits to be held in separate interest-bearing accounts, and this obligation transfers to the new owner.

6. 6

   The agreement should specify how any pending deposit disputes or claims will be handled between buyer and seller.

7. 7

   Tenants retain all rights to their security deposits regardless of property ownership changes.

8. 8

   Failure to properly transfer security deposits can result in penalties, including potential damages beyond the original deposit amounts in some jurisdictions.

Hawaii Requirements for Security Deposit Transfer Agreement

• Security Deposit Return Timeline (Hawaii Revised Statutes § 521-44(c))

  Hawaii law requires landlords to return security deposits within 14 days after tenant vacates the premises, with an itemized statement of deductions. The new owner assumes this obligation for existing tenants.

• Maximum Security Deposit Amount (Hawaii Revised Statutes § 521-44(a))

  Security deposits in Hawaii cannot exceed one month's rent. The transfer agreement must ensure that deposits being transferred comply with this limitation.

• Interest on Security Deposits (Hawaii Revised Statutes § 521-44)

  Unlike some states, Hawaii does not require landlords to pay interest on security deposits. The agreement should clarify this point to avoid misunderstandings between parties.

• Notification to Tenants (Hawaii Revised Statutes § 521-43)

  The new owner must provide written notice to tenants regarding the transfer of security deposits, including contact information for the new owner/manager.

• Itemization of Deposits (Hawaii Revised Statutes § 521-44)

  The agreement must include a detailed itemization of all security deposits being transferred, including tenant names, unit numbers, deposit amounts, and dates collected.

• Permitted Deductions (Hawaii Revised Statutes § 521-44(b))

  The agreement should specify that security deposits may only be used for unpaid rent, damages beyond normal wear and tear, cleaning to restore to move-in condition, and other breaches of the rental agreement.

• Successor Liability (Hawaii Revised Statutes § 521-44(d))

  The new owner becomes liable for the return of security deposits regardless of whether they were actually transferred by the previous owner, establishing successor liability.

• Escrow Requirements (Hawaii Revised Statutes § 521-44)

  While Hawaii doesn't require security deposits to be held in separate accounts, the agreement should specify how funds are held and transferred to ensure proper accounting.

• Indemnification Clause (Hawaii Common Law)

  The seller should indemnify the buyer against claims related to security deposits collected but not properly transferred or accounted for prior to the property sale.

• Prorated Security Deposits (Hawaii Common Law)

  For tenants who moved in shortly before the property transfer, the agreement should address how these deposits are prorated between seller and buyer.

• Fair Housing Compliance (Fair Housing Act, 42 U.S.C. § 3601-3619)

  The security deposit transfer must comply with federal Fair Housing laws, ensuring no discriminatory practices in how deposits are handled during the transition.

• Americans with Disabilities Act Compliance (Americans with Disabilities Act, 42 U.S.C. § 12101)

  Any security deposits related to disability accommodations or modifications must be properly transferred and accounted for in compliance with ADA requirements.

• SCRA Protections (Servicemembers Civil Relief Act, 50 U.S.C. § 3901-4043)

  The agreement must acknowledge special protections for active duty military tenants under the Servicemembers Civil Relief Act, including specific handling of their security deposits.

• Record Keeping Requirements (Hawaii Revised Statutes § 521-43)

  The agreement should specify that all security deposit records must be transferred to the new owner, including original condition reports and documentation of any prior deductions.

• Dispute Resolution (Hawaii Revised Statutes § 521-44)

  The agreement should include provisions for resolving disputes between seller and buyer regarding security deposit transfers, potentially including mediation or arbitration clauses.

• Tenant Rights Preservation (Hawaii Revised Statutes § 521-44(d))

  The agreement must preserve all tenant rights regarding their security deposits despite the change in ownership, ensuring no adverse impact on tenants.

• Disclosure of Deposit Conditions (Hawaii Revised Statutes § 521-44)

  Seller must disclose to buyer any existing claims, disputes, or conditions affecting security deposits that may create liability after the transfer.

• Compliance with Lease Terms (Hawaii Revised Statutes § 521-37)

  The security deposit transfer must honor any specific security deposit terms in existing lease agreements that may differ from statutory minimums.

• Tax Reporting Considerations (Internal Revenue Code, 26 U.S.C.)

  The agreement should address tax reporting responsibilities for security deposits, as these funds may have tax implications for both parties.

• Bankruptcy Protection (U.S. Bankruptcy Code, 11 U.S.C.)

  The agreement should include provisions addressing how security deposits are handled in the event of bankruptcy by either the seller or buyer, ensuring tenant protections.