Security deposit provision barring use to pay early termination fee waived by conduct

A nonresidential landlord and tenant entered into a lease agreement containing a security deposit provision prohibiting use of the security deposit to prepay monies due under the lease. An included early termination provision granted the tenant the right to terminate the lease on payment of a fee. The tenant exercised his right to early termination by handing the landlord a notice to vacate along with a check for a portion of the early termination fee, noting the landlord is to apply a portion of the security deposit to complete payment in full for the early termination fee. The landlord retained the tenant’s partial payment of the early termination fee, but disputed the tenant’s use of his security deposit to pay the balance due on the early termination fee. The landlord treated the lease as remaining in effect and sought to hold the tenant liable for the remaining term of the lease, claiming the tenant failed to exercise his right to early termination since the tenant attempted to pay a portion of the early termination fee by applying a portion of his security deposit, a violation of the lease agreement. The tenant sought to enforce his exercise of the early termination provision, claiming the landlord’s acceptance of the partial early termination fee payment, coupled with the request to use the security deposit to pay the balance, waived the landlord’s right to enforce the security deposit provision. A California court of appeals held a tenant has exercised his right to early termination by use of his security deposit when the landlord accepts partial payment in cash and then refuses the tenant’s request to use his security deposit to pay the balance of the fee since a landlord who accepts a partial payment for an early termination fee conditioned on the balance of the fee coming from the security deposit waives the provision barring the use of the security deposit for payment of amounts due the landlord. [Gould v. Corinthian Colleges, Inc. (2011) 192 CA4th 1176]

 Editor’s note — See first tuesday form 552 — Nonresidential Lease Agreement and form 572 — 30-day Notice to Vacate — From Tenant