FORFEITURE OF THE SECURITY DEPOSIT

A common misconception among managers is that the resident who breaches his lease automatically forfeits his security deposit as the minimum damages. Some managers believe the forfeited security deposit is in addition to any other damages. Most managers bolster their claim to the automatic forfeiture of the security deposit for breach of the lease with supporting lease language. As a general rule we advise that managers avoid automatic security deposit forfeitures for breach of the lease. There are some exceptions to the general rule and I touch on them at the end of the article.

An Invitation to Litigation

The automatic security deposit forfeiture is an invitation to litigation. First, the fact that it is an automatic forfeiture doesn’t relieve the manager of the responsibility of timely sending the notice of claim on the security deposit. Second, the resident receives a notice of claim that states the deposit is forfeited. It may or may not include additional itemized damages for the lease breach.

Most Florida county court judges will feel that the automatic security deposit forfeiture is inequitable. They will find the lease forfeiture clause unconscionable and refuse to enforce it, citing the Florida statute that permits them to do so. If that is the manager’s only reason on the notice for claiming the deposit, the manager’s reason is now invalid, and the notice of claim may be found to be statutorily insufficient. The manager may lose at this point without any opportunity to present his case.

The judge may allow the manager to present proof of the damages. Relying on the automatic forfeiture clause, the manager may not have done an inspection of the premises or obtained any proof of the damage (pictures) or saved any evidence of the cost of repair. Even the fair claims of the manager can fail for lack of proof.

The Lawsuit Scenario

Unfortunately for the manager the scenario in which this happens is the resident’s lawsuit for return of his security deposit. If the resident recovers any portion of his security deposit, he is generally entitled to his attorney fees. As we are all too well aware, attorney fees can be astronomical compared to the small amount of deposit money recovered.

A Trap For the Unwary

If the litigation risk wasn’t enough, the automatic security deposit forfeiture is a trap for the unwary manager. The legally unsophisticated manager or the attorney inexperienced in landlord/tenant law may draft an automatic forfeiture clause that inadvertently limits the manager to the security deposit as the only damages amount.

The rules of lease interpretation provide that ambiguities are decided against the lease drafter. Managers commonly include lease provisions providing for other damages (rent until relet, cleaning charges, use beyond ordinary wear and tear) or for damages as provided under Florida law. These provisions are in addition to the automatic security deposit forfeiture for breach of the lease. Poorly drafted lease language can result in the court holding that the damages clauses are confusing, ambiguous or even contradictory. The security deposit forfeiture can become the manager’s exclusive remedy, in spite of actual damages exceeding the security deposit amount.

The Exception

As I indicated above there are exceptions to the rule. Security deposit forfeiture clauses may be found valid when used as the damages for the failure to give notice at the end of the lease. This is treated in other articles. They are valid as part of well drafted vacate agreements.

Having read this article I hope managers will see that the automatic security deposit forfeiture for breach of the lease is a risky method to collect a deposit. If the resident’s breach results in damages in excess of the security deposit, then the manager should forego even mentioning any automatic forfeiture and apply the damages to the deposit. If they are less than the deposit, then the manager should contemplate his explanation to a judge for keeping the “unearned” money, while the resident’s attorney smiles at his easy attorney fees.