Opinion ID: 853015
Heading Depth: 1
Heading Rank: 3

Heading: The Security Deposits Statute

Text: A security deposit remains the property of the tenant. The Restatement (Second) of Property phrases the issue broadly: In the absence of a manifestation of a contrary intent, the landlord becomes a debtor of the tenant in the amount of the deposit, the amount of this debt to be cancelled to the extent of the tenant's liability to the landlord because of his defaults under the lease. On the termination of the lease ... the landlord is obligated to pay to the tenant the amount of his indebtedness. Restatement (Second) of Prop. § 12.1, cmt. 1 (1977). Thus, except to the extent the Security Deposits statute affects this arrangement, return of the security deposit is a contractual obligation of the landlord, subject only to the landlord's right to offset damages to the property. In general, the Security Deposits statute retains the obligation of the landlord to return the deposit, net of any damage claims, but imposes a timeline of events that can eliminate the landlord's right to offset for claimed damages, and can also expose the landlord to payment of the tenant's attorney's fees. Matusky v. Sheffield Square Apartments, 654 N.E.2d 740, 741 (Ind. 1995). The issue here is purely one of statutory construction. The Indiana Security Deposits statute, Indiana Code chapter 32-31-3, provides in relevant part: Section 12. (a) Upon termination of a rental agreement, a landlord shall return to the tenant the security deposit minus any amount applied to: ... (2) the amount of damages that the landlord has suffered or will reasonably suffer by reason of the tenant's noncompliance with law or the rental agreement ... all as itemized by the landlord with the amount due in a written notice that is delivered to the tenant not more than forty-five (45) days after termination of the rental agreement and delivery of possession. The landlord is not liable under this chapter until tenant supplies the landlord in writing with a mailing address to which to deliver the notice and amount prescribed by this subsection.... (b) If the landlord fails to comply with subsection (a), the tenant may recover all of the security deposit due the tenant and reasonable attorney's fees. Section 13 permits the landlord to apply a security deposit to the cost of repairing damage caused by the tenant not the result of ordinary wear and tear. I.C. § 32-31-3-13(1). Section 14 states that the itemized damages list must specify the estimated cost of repair for each damaged item, and be accompanied by a check for the unneeded balance of the deposit. I.C. § 32-31-3-13(1). In Raider, the Court of Appeals concluded that section 12 governs the consequences of failure to comply with the more specific information required by section 14. Raider, 613 N.E.2d at 872. We agree. In a nutshell, the statute provides that the landlord must refund the deposit, net of damage claims, within forty-five days and supply an itemized list of any damages claimed to reduce the amount to be refunded. Failure to refund and supply the itemized list results in a waiver of any claim for damages and exposes the landlord to liability for the tenant's attorney fees. The statute is clear that the landlord's obligation begins to run after termination of the rental agreement and delivery of possession. I.C. § 32-31-3-12(a); see also Figg v. Bryan Rental, Inc., 646 N.E.2d 69, 73 (Ind.Ct.App.1995). Or, to put it more precisely, termination of the rental agreement occurs after surrender by the tenant and acceptance of surrender by the landlord. Id. However, the landlord's obligation cannot begin to run until after the tenant has supplied a forwarding address. I.C. § 32-31-3-12(a); Raider, 613 N.E.2d at 872-73. The issue here is the effect of the tenant's delivery of a forwarding address more than forty-five days after termination. The trial court, following Raider, concluded that that effect was to delay but not eliminate the landlord's statutory obligations. In the view of the Court of Appeals, the tenant's delay removed the statute from play and left the parties where they would be if there were no Security Deposits statute. Although either result is consistent with the language of the statute, we agree with the trial court that the purposes of the statute are best served by the construction placed on it by the Court of Appeals in Raider, which took the view that a tenant's belated forwarding of an address tolled but did not eliminate the landlord's liability under the statute. The primary purpose of this statute is to equalize a bargaining position that the legislature deemed unbalanced. Turley v. Hyten, 772 N.E.2d 993, 997 (Ind. 2002); Lloyd T. Wilson, Jr., New Bricks for the Wall: Developments in Property Law in Indiana, 34 Ind. L.Rev. 955, 977 (2001). The purpose of these provisions is to provide for the timely return of the tenant's security deposit and to protect the tenant from wrongful withholding of the deposit by the landlord. Deckard Realty & Dev. v. Lykins, 688 N.E.2d 1319, 1321 (Ind.Ct.App.1997); Raider, 613 N.E.2d at 872-73. The notice requirements are intended to inform a tenant as to what specific damages or liability claims the landlord is attempting to offset against the tenant's deposit. Schoknecht v. Hasemeier, 735 N.E.2d 299, 302 (Ind.Ct.App.2000). Several aspects of the statute are clear. The tenant has no statutory obligation. Under this statute, and under the common law, the only effect of an unclaimed security deposit is that the landlord has the use of the money, and the issue of the amount of any damage remains unresolved. The effect of the statute is to permit, but not require, the tenant to trigger a prompt resolution of these issues and a prompt refund of the deposit if there is no dispute over damages. It imposes no great burden on a landlord to permit that remedy to be invoked even after some time has passed. Pinnacle Props. v. Saulka, 693 N.E.2d 101, 104 (Ind.Ct.App.1998). To the contrary, the landlord has the potential of a windfall in the form of a perpetually unclaimed security deposit. The landlord is required to itemize the damages promptly after termination to be in a position to comply with the forty-five-day requirement of the statute. Retention of that information places a minimal burden on the landlord who has not yet been furnished with the tenant's forwarding address. On the other hand, forfeiture of the statutory remedy eliminates the tenant's bargaining leverage to achieve a prompt resolution of any dispute. The statute does not explicitly provide that the tenant's remedy evaporates after forty-five days. Rather, it says the landlord has no liability until an address is furnished. If the tenant has not supplied an address within the forty-five-day period, we think tolling the landlord's obligation until a forwarding address is furnished is more consistent with this language and with the purpose of the statute. Robinson v. Gazvoda, 783 N.E.2d 1245, 1251-52 (Ind.Ct.App.2003), concluded that the tenant has a reasonable time to provide a forwarding address to the landlord, even outside the forty-five-day period. Assuming there is some point at which the tenant's ability to invoke the statute expires, either by passage of time or by detrimental reliance by the landlord, we need not address that question here. The Householders furnished their address only two days after expiration of the forty-five-day period, and there is no claim that the intervening period in any way prejudiced the landlord's interests.