Rental Property Investor · Los Angeles, CA · Member since 2017 · 30 posts · 12 votes
I recently bought a building with pre existing tenants. Many of the units have multiple signers on the lease. When tenants move and I return security deposits, should I divide the deposit equally among the tenants and write a check to each tenant and give an equal amount?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
If there are multiple people on the lease, and no paperwork that states a specific person or persons provided the security deposit, return it to them as a check made out to "tenant 1 and tenant 2 and tenant 3...". Let them sort it out.
Did the estoppels collected prior to close detail the apportionment of security deposit amongst the signatories to the lease? If not, then you can divide the returned security deposit equally ... or return a single payment in the names of all tenants.
We rent to lots of students and often have 3-5 housemates as signatories to a lease. We have a practice of "one lease, one payment" and ask our tenants to designate one representative to send us a single security deposit and single rent payment each month. If they insist on sending individual rent payments, we charge an administrative fee to cover the extra bookkeeping effort and bank charges.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
If there are multiple people on the lease, and no paperwork that states a specific person or persons provided the security deposit, return it to them as a check made out to "tenant 1 and tenant 2 and tenant 3...". Let them sort it out.
Investor · Denver, CO · Member since 2011 · 53 posts · 8 votes
7y
So there's some holes in this approach (which I'm also trying to sort out myself). Note my Lease states that I write a joint check and mail it to the first tenant alphabetically. Per my real estate lawyer/friend,
"C.R.S. §38-12-103(1) requires you to deliver the deposit (or the accounting of it) to the “last known address of the tenant” who deposited it with you. Anyone who isn’t the first tenant alphabetically could potentially argue that sending it to that person violated your obligations under the statute. This would be more likely if the person who does receive the deposit (or accounting) fails to share it with the others.
Since each tenant may have a different “last known address,” it would seem that the safest approach would be to collect a separate deposit from each tenant so you can separately return them or account for them. "
Is anyone following this approach - dividing it equally and sending separate checks? How is that working for you? Seems more rentals are more like this - where all tenants don't move out at the same time. You could just make them all move out at the same time but then your rental is empty. Just thought I'd mention since it is easy for the first tenant to not share the deposit with everyone else and in Colorado, that might violate the security deposit statutes.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
7y
The problem with having separate deposits for each tenant is dividing up any fees taken out for damages etc. Tenant A will say they didn't put that hole in the wall, Tenant B did, so he wants all of his deposit back.....Tenant B says the opposite. etc etc....You can imagine al the scenarios of disputes on who gets what deducted from their deposits. All fine and good when its a full refund, but start with any deductions and it will get messy....
That's why most do a deposit on the property....not per tenant, If tenant B moves out, then the new Tenant C pays the deposit to Tenant B.... my original deposit stays with the property. You document that damages, fees etc and then the tenants exchange the $$ between themselves.
You supply one deposit refund check and let the tenants fight about the $$....not your problem.
Investor · Manteca, CA · Member since 2017 · 1k+ posts · 2k+ votes
7y
As for the law cited above..... your concern would only apply if you took individual checks on the deposit originally. If Tenant A was the one that gave you the full deposit originally, then you are following that law by sending the refund check to Tenant A. Only Tenant A deposited it with you...so you are only obligated to send it to Tenant A at the new address.
If you took individual checks/payments from each tenant, then no you cant issue one check to tenant A alone.
That's why I take one payment of deposit from one individual, note it on the lease etc and then issue the refund to that one person and let them figure it out after that on how they want to split the $$
Real Estate Agent · Grand Junction, CO · Member since 2015 · 1k+ posts · 736 votes
7y
I vote for @Roy N. and @Ned J. It's all rosy when they are getting back 100% of their money. But if you need to hold out for cleaning or damages or unpaid rents then you open a can of worms. You don't want to be in the middle of "well it is Tenant A's bedroom with the ruined carpet" or "I gave Tenant B ALL my rent - so I'm not deficient". The one tenant / one check rule keeps it clean on your end. Let them fight it out on their end...
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Rupert Grant
When they move out I would start by asking the tenants how they want it returned. If they do not agree, then equal shares. Just make sure you get their decision in writing.
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
7y
@Lora H. are you paying your real estate lawyer/friend? If so, it's all good but that's not what I was told by my lawyer (not my friend) who represents probably 50% (conservatively) of all the landlords along the front range. @Jon Holdman has the answer I was told.