If a tenant buys the house they were renting, does the landlord have to refund the security deposit to them?
Alice is renting a house from Bob on a six-month lease. She then enters an agreement to purchase the house. At closing is Bob responsible to pay back her security deposit?
I am in Oregon and could not find the answer easily. I would assume this is a basic, common-sense "yes", but I'd like to know the statutory basis, if possible. Thanks.
There are 2 distinct contracts here - the rental agreement and the sale agreement. They are independent and, absent specific clauses, do not affect each other at all. Consider what would happen if Bob was selling to Charles instead of Alice.
The rental agreement ends when the sale agreement takes effect; if this is a normal situation then when the rental agreement ends the security deposit will be refunded subject to any legitimate deductions.
There is a landlord L, with a tenant T, and the landlord sells the house to a buyer B. The fact that T and B are the same person is irrelevant.
Usually people buy a house either to live there, or to make money by renting it out. The first type of buyer will want to buy a house without a tenant, the second type of buyer will quite happily take a house with a tenant. So that will be in the contract, whether you buy a house without or with tenant.
If the buying contract says "no tenant", the landlord L has to cancel the rent contract with T, and that will usually require paying back the security deposit to T, depending on the rental contract. If the buying contract says "with tenant", then the landlord L sells the house together with the rental contract. T is not involved in this. The contract will usually say when T will pay starting rent to B instead of L, B or L will pay part of that rent to the other party, and L will give the security deposit to B.
On the other hand, there is the fact that L and B have been negotiating about the sale price. They can put anything they like into the sales contract, and the sale price will be different depending on the terms in the contract. It may be unwise to negotiate too hard about a few hundred dollars for the security deposit instead of haggling about the sales price and possibly saving several thousand dollars there.
The rental agreement would flow naturally to the sale agreement. The holder of the security deposit would submit payment of the security to the new owner, who in this case, is the payor of the security. so...yes.
What's the point of a security deposit? To ensure that the landlord can restore the property to good condition after taking possession from the tenant, should that be necessary.
Why does a landlord who is selling a property need it to be in good condition? To be able to deliver the property to the purchaser in good condition.
Since the tenant and the purchaser are the same person, the landlord need not worry about protecting the purchaser from wrongdoing on the part of the tenant. The security deposit becomes meaningless. The entire deposit, therefore, should be credited to the purchaser at the closing, and the sale contract should reflect this.
