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Application of Security Deposit

Most every commercial lease has (or should have!) provisions regarding the management and application of the tenant’s security deposit. Since the Virginia Code does not specifically address security deposits for commercial leases, the applicable lease provisions will control in the event of any dispute between the landlord and the tenant. Ideally, the lease should: specify the amount of the security deposit; permit the landlord to make deductions from the security deposit in the event the tenant fails to pay rent, damages the property or otherwise violates the lease; require the tenant to restore the full balance of the security deposit in the event deductions are made by the landlord during the term of the lease; permit the landlord to transfer the security deposit to a successor landlord; and set forth a time table pursuant to which any remaining balance of the security deposit will be refunded following the termination of the lease. It is quite common for landlords and tenants to dispute the application of the security deposit at the end of the lease term. A well-written lease will give the landlord substantial power to make deductions from the security deposit to repair damage to the property and to compensate the landlord for any other losses incurred as a result of the tenant’s actions or defaults. It will also shift the legal burden to the tenant to contest the landlord’s deductions. Of course, landlords should endeavor to be reasonable with respect to deductions and should meticulously account for any deductions by documentation of charges and communicating clearly with the tenant.

 

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