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Consider the scenario where the owner of a summer rental property learns that the county occupancy tax has increased between the time when a tenant signed a rental contract and paid the agreed upon fee (which included the lower tax rate) but before the tenant occupied the rental. Further, the landowner only realizes the change in tax rate after the renters have completed their stay at the property, but before the security deposit has been returned.

Under what conditions is the landlord entitled to deduct the difference in taxes from the security deposit? Additionally, should the difference in taxes exceed the security deposit, can the landlord bill the (now former) tenants the amount in excess?

Additional information added in response to comments

The 2-page rental agreement contains the following two items under a section Payment Terms. (Identifying information removed.)

  • Security Deposit Your security deposit will be returned to you no later than 4 weeks after your stay to allow for property inspection, damage assessment and receipt of any TV or overseas telephone charges.
  • Rental Fee to be made out to ___ in the amount of ___ and to be received no later than 4 weeks prior to your arrival. The county has imposed a 3% occupancy tax on rentals, payable by renters and forwarded by owners to the County Treasurer.

No other information is provided in the Payment Terms section. The issue revolves around the incorrect value of the occupancy tax. Because this item is part of the rental fee, is it an allowable deduction from the security deposit. Based upon the text, I interpret the document to indicate that only four items (property inspection, damage, TV and phone charges) can be deducted from the security deposit.

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  • What jurisdiction do you have in mind? Sep 7 at 18:35
  • US, New York, Adirondacks. I'll keep further details private to avoid the "legal advice" clause of this site. Sep 7 at 18:39
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    Absent any applicable statutory provision, it depends on what the contract says about it. Both in terms of what the occupant is liable for paying, and in terms of what can be deducted from the deposit. You need to address that in the question. Without that information this question is essentially impossible to answer.
    – JBentley
    Sep 7 at 19:16
  • @JBentley understood - I do want to avoid making this a "here's what's happening to me" question. Are you saying the most likely answer is "whatever the parties agreed to beforehand"? I do not know enough about rental agreements to know if there is an accepted definition for allowable expenses for a security deposit that does not need to be clearly spelled out in an agreement. Sep 7 at 19:26
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    @user662852 In any case, whether or not a tax is chargeable (i.e. must be paid to the government) is a separate matter from which of the parties in the contract is liable to the other for paying it.
    – JBentley
    Sep 7 at 20:06
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Under what conditions is the landlord entitled to deduct the difference in taxes from the security deposit?

These would have to be specified in the contract as in the tax escalation clause in Gateway Center Corp. v. U.S., 766 F.2d 494 (1985) and in terms that supersede "the usual meaning" [and purpose] of the term as outlined in Bowles v. Westbrook Defense Homes, 61 F.Supp. 172, 173 (1945) ("to protect the lessor against violation of the rental or other provisions of the lease"). An inaccuracy or outdated detail in the lease does not mean that the tenant violated the rental or other provisions of that lease.

Related news suggest that the tax increase might not apply to the scenario you describe, though. For instance, in Essex county the law apparently was to be amended to so that "the tax goes with the date of the booking rather than the date of the stay", and impliedly regardless of the deadline for reimbursement of security deposit. There might be a similar provision in your county, and your description indicates that the tax increase happened after "the tenant signed [the] rental contract".

If it turns out that the tax increase is applicable in your scenario, the Restatement (Second) of Contracts at §§ 151-153 suggests that --absent a lease provision to the contrary-- the landlord is not allowed to deduct from the security deposit the difference anyway. That is because the landlord as the adversely affected party from the mistake (i.e., the "belief that is not in accord with the facts") declined or failed to exercise his entitlement to void the lease. At this point there is nothing to void because "the renters have completed their stay at the property".

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    A very comprehensive answer, and some good sleuthing. Sep 8 at 12:32
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An increase in occupancy tax would only be recoverable from the security deposit if the charge is authorized under the lease. The excerpt of the lease provided is not clear enough to determine if that is the case.

There is also an argument that the Security Deposit does not cover unpaid rent or occupancy tax, although that would probably not be the strongest argument.

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