Commercial Real Estate Investment/Commercial Security Deposit

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Expert: - 12/30/2008


Question
We have fulfilled our obligation according to our lease agreement and have relocated to another building. The final walk thru was successful and we have requested the return of our security deposit. We have not heard from the landlord regarding our deposit and now we have been told the building is in foreclosure. Isn't commercial security deposit money to be kept in a secure account like escrow funds? What is our recourse? Thank you


Answer
Joseph-

This is largely a legal question that requires knowledge of other provisions of your lease regarding the lenders rights and liability matters.  I am not an attorney, so I cannot advise you legally in that regard.

As a real estate specialist I suggest that you check your lease to see if it contains a provision that often appears in office space leases where you agreed not to pursue the former landlord if it no longer owns the building.  Normally it can be found in the same general area that deals with the security deposit.   I have always thought of that provision as referring to a sale of the property, but I realize now that it would seem to apply to a foreclosure also.

Legally, you never know when a jurisdiction may have legislated specific provisions - that would supersede the provisions of your lease - regarding security deposits and how they must be handled.  You might call your local Landlord/Tenant ("L & T")court office or civil court, to discover if there is L & T deposit regulation in your area.  

You should check the Internet to see if your area has a copy of the local landlord/Tenant laws on-line.  Many areas now have their L&T  laws on-line and I find that they are written so that lay persons can understand them.  Landlord /Tenant laws commonly address security deposits.   Usually the local laws are made with the intention of using them regarding apartment rentals, and most areas simply decide to make them also apply to commercial leases.  When this is the evolution of the deposit laws, most areas draft them with the idea of protecting apartment renters and commonly they will favor the tenants.  Hence if this is the case here, you may get lucky and have an avenue to pursue that favors you.

Finally, currently I am experiencing your same problem with one of my own commercial office building clients.  I know the visceral feelings that you have about an owner that slips away with your money.  In my clients case, the owner of the property comes from one of the largest and famously wealthy family fortunes in the U.S.   It is often surprising who will run from their deposit obligations.

I wish I could be of more assistance.

Godspeed and good luck,

- Jim  

Commercial Real Estate Investment

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Jim Avancena, CPM

Expertise

Best qualified to answer questions that involve commercial leases, that is, basic issues as well as the often unexpected effects of the complexities and inter-relationships of the provisions a lease may contain, explain how seemingly innocuous text in your lease can have a major impact on a Tenant or Landlord and their business operations, and the common practices utilized in the industry. I can untangle most matters that may come up from the time a tenant begins searching for a office or store space and the lease acquisition process, concerns related to remodeling/improving the leased premises, moving-in, subletting or assigning the leased space, and a long list of problems that may come up during the lease term and even after a tenant moves out. I have practical experience with most property management issues and resolving landlord and tenant disputes - especially those involving what may appear to be overcharges assessed for additional lease charges like CAM costs, operating expense reimbursement, real estate taxes, utilities, construction improvements etc. Note that I am not an attorney and cannot provide legal advice.

Experience

Thirty years active experience in the commercial real estate industry as a licensed real estate broker in the Washington DC Metro area (DC, Northern Virginia & Maryland). I have been admitted (approved) by the Maryland and DC courts to testify as an expert witness on the subjects of Commercial Leasing and Property Management in the area of standard industry practices. I have had a business for the last 14 years advising virtually every form of business entity from large national corporations to the smallest ma & pa new businesses regarding a wide range of commercial real estate matters in addition to property management and commercial leasing.

Organizations
Currently my three children keep me so busy that it is difficult to participate in organizations with continuing and specific time requirements.

Publications
I publish a local commercial real estate newsletter titled: "Tenants First". My firm was the subject of a high profile Washington Post business section cover page (2.25 full pages) feature story on January 13, 1993; titled "Overcharging Overhead".

Education/Credentials
BA in Political Science from Memphis University, and five years of study in the real estate development summer program at MIT. I was certified as a commercial property manager (CPM-IREM), and currently hold a brokers license in Maryland and the District of Columbia.

Awards and Honors
The same plaques and honors that most others in my industry have earned. I have none that I consider especially meaningful.

Past/Present Clients
Past clients include: The World Bank, George Washington University, National Association of Criminal Defense Attorneys, US Department of Commerce, The American Benefits Council, K-Mart Development, many law firms, a national union, other major organizations, and many, many small business firms and retail operators that I am most honored to serve. I estimate more than 1,500 firms/organizations.

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