Daily Development for Monday, March 7, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
LANDLORD/TENANT; SECURITY DEPOSITS; TURNOVER OBLIGATIONS TO SUCCESSOR LANDLORD: Successor Landlord has a private right of action to recover tenants’ security deposits under New York criminal statute.
Gerel Corp. v. Prime Eastside Holdings, LLC, 783 N.Y.S.2d 355 (A.D. 1 Dept. 2004).
Gerel, the original landlord of a set of three mixed use properties subject to multiple leases net leased its landlord’s interest in the properties to Prime. Prime subsequently defaulted and returned the properties Gerel. But Prime failed to return the tenant security deposits, claiming that it was entitled to offsets for monies that it had prepaid on taxes and other items.
A New York statute makes it a crime for a landlord to fail to turn over security deposits to a successor landlord. The State Attorney General is vested with the power to prosecute for violations. The court held that the Gerel had the right to sue for the tenant security deposits under this statute, even though there was no civil action provided and even though the money belonged to the tenants.
In response to the argument that the proper “beneficiaries” of the statute were the tenants, and not the successor landlord, the court noted that the successor landlord is the trustee of the security deposit monies for the benefit of the tenants in the event that the tenants end their lease without breaching and are entitled to the return of the monies.
Comment: Note that it appears that Prime was not permitted to make an offset claim, even if it could prove that it was entitled to offset, because these were trust monies subject to a statutory duty.
In most cases, one would assume that the original contract would have compelled the return of the deposits. The court doesn’t mention that here. But if there had been such a contractual duty, it might have been subject to an offset right, which was not available to the defendant when landlord sued under the statute.
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