Extension of lease with one tenant - handling security deposit

[Raman Bindlish]

Hi Landlord community,

I have an interesting situation and would appreciate suggestions on how to handle it. I have 2 tenants on my lease which is ending on January 15th. One of the tenant (lets call him T1) wants to go on month to month while other tenant (T2) has already vacated. T2 is ok with me keeping the security deposit on the lease while he wants his name to be off of the lease after the current lease gets over on January 15th. T1 can not pay me a new deposit. T1 and T2 are not on talking terms anymore and want me to handle everything with minimum interactions (specifically financial). Now I am wondering how to handle the situation with minimal transactions.

Questions:

1. Can I create an extension of existing lease and remove one of the tenants from the lease? Or do I need to create a fresh lease document?

2. In either condition, how do I roll over the security deposit? Can I ask T2 to sign some simple document saying that he is waiving off right to security deposit and it can be paid to T1? Can I apply the security deposit from old lease to new lease or I need to show actual transactions in bank?

-Raman