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The Lost Security Deposit

A Tenant in Virginia may lose its security deposit to the new owner. According to a 1998 Loudoun County General District Court case, the new owner of the property was not subject to the same obligations as an assignee of the Lease - even though the new owner at foreclosure was the lender which had a collateral assignment of rents agreement.

The Court relied on three documents to excuse the new owner: (1) the Lease which stated that a new owner by foreclosure would only be responsible for the security deposit if it actually received it from the prior owner; (2) a Subordination, Non-Disturbance & Attornment Agreement which released the lender from defaults of the prior owner; and (3) a Tenant's Estoppel Certificate which permitted the lender to enforce tenant's obligations but prevented assumption of any liability by lender under the Lease.

Thus, a new owner should examine the Lease and other relevant documents before crediting or returning security deposits that it never received from the prior owner.