Dealing with Deposits – for Franchisee Tenants

Providing your landlord with a deposit is standard procedure; however, getting your deposit back may become a different matter entirely! This, however, is your money that you will want and/or need. With franchisee tenants typically leasing the same location for an initial term of five to 10 years, it’s easy to understand how paid deposits can be forgotten about. Remember this money paid and push to have it returned.

As a franchisee tenant, it is important that you talk to your landlord about refunding your entire deposit as soon as you vacate the premises. You may be afraid to bring up the subject fearing that your landlord may have some excuse for not giving you your deposit back (this reasoning may or may not be true). But you can’t determine if there is a problem (and then work to solve the problem) if you don’t ask before you move out.

Most landlords don’t mark their calendar with a date to return your deposit. In fact, most landlords would be quite happy if you never brought up the subject again. Business-owners of all types often contact us months after they move out and question why their landlord hasn’t refunded their deposit. We usually reply by asking, “Have you asked for the money back yet?” The answer is, typically, “No”. We then begin with the basics: you have to ask to receive.

We recommend that you ask your property manager about the landlord’s process for refunding deposits three or four months before your lease expires and ask these questions:

• Does the landlord require a letter or an invoice?
• On the last day of the lease, will there be an exit viewing and walk-through of the premises to ensure there is no damage?
• What should I do to get my full deposit back? Will I need to have the carpets cleaned and/or surrender all sets of keys?

Landlords have many reasons why they can’t or won’t return your security deposit:

• You have damaged the premises.

• You didn’t remove your leasehold improvements.
• You removed leasehold improvements that the landlord wanted you to leave behind.
• You owe Common Area Maintenance (CAM) charges from that year.
• You did not pay penalties or interest for late rent charges.
• You subletted or assigned the lease agreement without landlord consent.
• You didn’t remove your signage from the building and/or complete repairs.
• The landlord may have whittled away at your deposit over the years for small rental incidentals or items they have invoiced your for that you didn’t pay.
• If your building has been sold since you first leased, the new landlord may claim he doesn’t have your deposit as the previous landlord never passed it along.
• If your landlord lost the building into receivership or had it taken over by the mortgage holder, your new landlord won’t have the deposit because he bought the property from a bank and, in this case, your deposit was long gone.

If your landlord acknowledges that he has your deposit, check your lease agreement. It may state the amount of time the landlord has to refund your deposit. If not, ask for a refund within ten days of your invoice to the landlord.

How can you get your deposit back in difficult circumstances? After you invoice the landlord in writing (keep a copy of your letter or your e-mail sent), call the landlord’s accounting department to ask how it plans to handle the return of your deposit. You may likely hear one of these two responses:

• Your deposit was applied to one of the previously-listed points and you will receive a statement of account (meaning that you will still owe money to the landlord).
• The landlord has a cash flow problem and can’t return your deposit yet.

After you know the reason for the delay, you have numerous options on how to get your deposit back from the landlord:

• Wait until any repairs are completed and for your landlord to determine the total cost of these repairs. You may receive a statement of account and any monies due at that time – if any money is left.
• Obtain a legally enforceable payment plan from the landlord (if the problem results from a landlord’s low or no cash flow). Getting your money back over a period of time is better than getting no money back at all.
• Lawyer up. This process could be long, drawn-out, and expensive if the matter eventually goes to court.
• File a small claims action against the landlord (depending on the jurisdiction).

When you sell (or buy) a business, the landlord can either retain the tenant’s deposit and apply it to the account for the new tenant or refund your deposit and collect a new deposit from a new tenant when the lease is assigned. Most landlords have a policy about these transfer situations. You probably won’t be in a position to dictate to your landlord which of these ways they’ll use to handle the matter, but there’s no harm in asking when you make the lease assignment application (if you have a preference).

The best way to handle the situation is to ask the landlord in advance which way they’d handle a deposit and then structure you purchase agreement accordingly. If you can’t do that, make your purchase agreement flexible enough to cover whichever way the landlord wants to apply or refund the deposit.

For a copy of our free CD, Leasing Do’s & Don’ts for Franchise Tenants, please e-mail your request to DaleWillerton@TheLeaseCoach.com.