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.

Maine Requirements for Security Deposit Transfer Agreement

• Maine Security Deposit Limit (14 M.R.S.A. § 6032(1))

  In Maine, a landlord cannot demand or receive a security deposit greater than the equivalent of two months' rent. The agreement must acknowledge this limitation and confirm that all transferred deposits comply with this statutory maximum.

• Security Deposit Holding Requirements (14 M.R.S.A. § 6038)

  Maine law requires landlords to hold security deposits in an account separate from their personal funds, either in a bank or financial institution subject to regulation. The agreement must specify how deposits are currently held and how they will be maintained by the new owner.

• Interest on Security Deposits (14 M.R.S.A. § 6038)

  While Maine state law does not require landlords to pay interest on security deposits (except in specific municipalities), the agreement should address whether interest has accrued, how it has been calculated, and how it will be transferred or accounted for in the transaction.

• Tenant Notification Requirements (14 M.R.S.A. § 6035)

  Maine law requires that tenants be notified in writing of the transfer of their security deposit to a new owner, including the new owner's name, address, and telephone number. The agreement must specify who will provide this notice and when it will be provided.

• Security Deposit Return Timeline (14 M.R.S.A. § 6033)

  Maine law requires security deposits to be returned within 30 days of termination of tenancy if there is a written rental agreement, or within 21 days if there is no written rental agreement. The transfer agreement must acknowledge these timelines and establish responsibility for deposits that may need to be returned during the transition period.

• Itemization of Damages (14 M.R.S.A. § 6033(2))

  Maine law requires landlords to provide a written itemized statement of the reasons for retaining any portion of a security deposit. The agreement should address how documentation of unit conditions and potential damages will be transferred to the new owner.

• Penalties for Noncompliance (14 M.R.S.A. § 6034)

  Maine law imposes penalties for wrongful withholding of security deposits, including potential liability for double the amount withheld plus reasonable attorney's fees. The agreement should acknowledge these penalties and establish indemnification between the parties for violations that occurred before or after the transfer.

• Record Keeping Requirements (14 M.R.S.A. § 6033)

  The agreement must address the transfer of all security deposit records, including initial deposit amounts, any deductions made, and communications with tenants regarding their deposits, to ensure compliance with Maine's record-keeping requirements.

• Warranty of Deposit Amounts (14 M.R.S.A. § 6035)

  The seller must warrant the accuracy of all security deposit amounts being transferred, including a complete list of all current tenants, their deposit amounts, and any claims against those deposits that are pending or anticipated.

• Successor Liability (14 M.R.S.A. § 6035)

  Under Maine law, the new owner assumes liability for all security deposits received by former owners. The agreement should explicitly acknowledge this successor liability and provide for indemnification from the seller for any discrepancies.

• Escrow Provisions (33 M.R.S.A. § 1951-1960 (Maine Uniform Unclaimed Property Act))

  The agreement should include provisions for temporarily holding security deposits in escrow during the property transfer process to ensure proper accounting and transfer of all funds.

• Fair Housing Compliance (5 M.R.S.A. § 4581-A; 42 U.S.C. § 3601 et seq.)

  The agreement must acknowledge that the handling of security deposits must comply with federal and state fair housing laws, prohibiting discrimination in the return or withholding of deposits based on protected characteristics.

• Truth in Lending Act Compliance (15 U.S.C. § 1601 et seq.)

  If the security deposits are part of seller financing arrangements, the agreement must comply with federal Truth in Lending Act requirements regarding disclosure of terms and conditions.

• Bankruptcy Protection Provisions (11 U.S.C. § 541)

  The agreement should address how security deposits will be protected in the event of bankruptcy by either the buyer or seller, recognizing that security deposits may be considered trust funds not part of a bankruptcy estate.

• Assignment of Leases (33 M.R.S.A. § 801 et seq.)

  The agreement must include provisions for the assignment of all leases associated with the transferred security deposits, ensuring that the new owner has the legal right to hold these deposits under the terms of the existing lease agreements.

• Dispute Resolution (14 M.R.S.A. § 5927 et seq.)

  The agreement should establish a process for resolving disputes between buyer and seller regarding security deposit transfers, including potential mediation or arbitration provisions that comply with Maine's alternative dispute resolution statutes.

• Taxation Considerations (26 U.S.C. § 61; 36 M.R.S.A. § 5102)

  The agreement should address the tax implications of security deposit transfers, including whether deposits are considered income and how they should be reported to federal and state tax authorities.

• Compliance with Local Ordinances (30-A M.R.S.A. § 3001)

  The agreement must acknowledge compliance with any municipal ordinances in Maine that may impose additional requirements on security deposits beyond state law, particularly in larger cities like Portland or Bangor.

• Severability Clause (1 M.R.S.A. § 71)

  The agreement should include a severability clause stating that if any provision is found to violate Maine law, the remainder of the agreement will remain in effect, preserving the overall transfer arrangement.

• Integration with Purchase Agreement (33 M.R.S.A. § 163)

  The security deposit transfer agreement should clearly state its relationship to the main property purchase agreement, including whether it is incorporated by reference or stands as an independent contract under Maine contract law.