Security Deposit Snafu

[Matthew Poger]

I have a tricky situation regarding my tenant's security deposit.

The situation is such that:

- My tenants signed the lease in their name

- My tenants employer agreed to pay for everything (1st & last month's rent and security deposit, and all the monthly lease payments)

- That employer fired the tenant and stopped paying.

- I informed tenant that the lease agreement has their name on it, so they need to find a way to continue paying the lease.

- My tenant did continue to pay the lease until its completion without issue.

Now that they're moved out, the tenants are requesting the security deposit back to THEM.

I explained that my concern is that the original employer paid it , and could actually also request it back in order to reconcile their books, since the security deposit was paid out of their account.

I wouldn't want to hand over the money to the tenant, and then have the employer also come to me for the security monies with a legal obligation.

Does anyone have any insight on who the security deposit money should go back to (legally) or has anyone had something like this happen before?

The tenants are stating that: 

"[The employer] is not listed within the legal binding document, therefore it's our opinion that [the employer] would have no legal recourse to recover the security deposit, as security and deposits were a part of [the tenant's] employment package. As you're aware, [the employer] defaulted with the original agreement with the Tenants & Landlord to pay monthly rent fees and therefor forfeited last month rent & security."

My issue with this is that, the employer couldn't "default" on a lease that it didn't sign. The employer literally has no connection to me or the actual lease agreement at all, except that the security deposit was paid from its account.

My tenants also state in the letter:

"...we offer this document that would hold you harmless from any future litigation."

I'm not sure what that means - Googling lead me to a few 'Hold Harmless' templates, and it sounds like they're offering to take the fall for any litigation that the employer could impose upon me? But does anyone have a clear understanding of what that actually means to me?

So, who ultimately should the security deposit monies go back to? Should I contact the employer and bring them into the discussion, or would that cause more problems than it's worth?

The employer hasn't reached out to me at all yet in regards to it. My fear is that if I had the security deposit over to the tenants, the employer will come back to me for it at some point in time, and I'll end up paying it back double.

Thanks again for any words of wisdom surrounding all this.