Are security deposits, earnest money refunds and related payments properly accounted for?
It is very important to make sure that the provisions of the lease pertaining to handling of long-term security deposits are clear and consistent with the management agreement per Rule E-16. If installment payments of deposits are made per a lease addendum, a record ( tenant ledger or similar accounting record) must account for the individual amounts due, the amount held and any balance owing. The broker should never sign the lease, as if full payment was made, unless it was received when the document was executed. Some brokers have no adequate record to support the claim that the tenant made a partial payment when the lease states otherwise. Missing funds are usually replaced by stipulation with the Commission for failure to account for deposits collected, or transferred between the management and security deposit escrow accounts. Note: The Commission Newsletter dated July 1998 “Offsetting Broker Expenses Against Refundable Deposits” reviews important concepts and misconceptions about
