250 LLC v. Photopoint Corp.(usa)

Sherwood Partners, Inc., as assignee for the benefit of creditors of PhotoPoint Corp. (USA), and 250 L.L.C. (250) appeal from the judgment in these consolidated actions arising from a dispute concerning a substantial security deposit under a commercial lease between 250 as lessor and Photo-Point as lessee. The central issues in the appeals are whether the court below correctly ruled that 250 failed to return the security deposit as required by Civil Code section 1950.7, but that 250 was entitled to offset the amount of the security deposit it withheld against the even greater amount of damages it sustained on account of PhotoPoint’s breach of the lease, and therefore PhotoPoint sustained no actual damages and was not entitled to return of the deposit.

We conclude that 250 violated section 1950.7 by retaining the security deposit to cover its damages for future rent owed under the lease, because section 1950.7 allows a security deposit to be applied only against unpaid rent that has accrued as of the date called for in the statute for the return of the deposit. We hold that parties to a commercial lease can waive section 1950.7 to provide that a security deposit may be…