What Happens to the Security Deposit at Sale?

[Paul Stout]

What happens to the tenants security deposit if I purchase a multi family building with tenants already in it.  Do I get those from the previous owner?  Do I have to factor that in as a cost of purchase?  Is there a standard or is it whatever I can negotiate?

[Marcia Maynard]

All security deposits should be transferred to the new owner at closing. The new owner will be obligated to the tenant for the security deposit, whether or not the new owner receives the funds from the previous owner.

Security Deposits are held separately than operating funds. When a property sells, they are typically handled over in a separate check too, which can then be deposited in a separate account of the new owner to be accessed when a tenant moves out. Security Deposits are the tenant's money until they vacate the unit and a final accounting is completed. 

You need to know the rent for each tenant and how much security deposit each tenant paid. Ask for the tenant files from the previous owner, or at least a copy of each tenant lease/rental agreement. If this information is not available, then ask each tenant for a copy of their lease/rental agreement and or proof of how much security deposit they paid to the previous owner. If you can't get a copy of the rental agreement, sometimes it is necessary to get an tenant estoppel letter, whereby the tenant states the terms of the rental agreement, how much their rent is and how much security deposit they paid.