When a property is sold and the landlord changes, the tenant’s most immediate concern is not only whether they can continue living in the property, but also:
When the lease ends, who should return the security deposit?
In the previous article, we discussed whether a tenant may continue to reside in the property after it has been sold, and explained the legal principle of “Sale Does Not Break Lease.”
This article focuses on another practical issue that frequently gives rise to disputes:
Upon lease termination, from whom should the tenant reclaim the security deposit?
In practice, situations often arise where the new landlord claims not to have received the deposit, while the former landlord asserts that everything was already transferred. Fortunately, the law provides guiding principles and workable approaches. By understanding several key points, former landlords, new landlords, and tenants can significantly reduce potential risks.
What Does the Law Say?
Civil Code Article 425:
“1. After the leased property has been delivered and is in the possession of the lessee, even if its ownership is transferred to a third party, the lease contract shall continue to exist against the transferee.
2. The preceding paragraph shall not apply to real estate leases that have not been notarized where the term exceeds five years or where the lease is of an indefinite duration.”
✨ Plain explanation: Even if ownership of the property is transferred to a new owner, as long as the tenant is in lawful possession during the lease term, the original lease remains valid. The new owner assumes the status of landlord, and the lease relationship continues. This principle is commonly known as “Sale Does Not Break Lease.”
However, special attention must be paid:
If the lease is not notarized and either exceeds five years in duration or is a Non-Fixed-Term Lease, Article 425 does not apply.
⚖️ Legal Source: Civil Code Article 425 – Law.moj.gov.tw
Is the Lease Still Valid After the Property Is Sold?
In most cases, the sale of the property does not affect the existing lease.
- The new owner becomes the new landlord
- The tenant may continue residing under the original lease
- Rent should thereafter be paid to the new landlord
If the landlord attempts to terminate the lease prematurely solely because of a sale, the tenant has the right to refuse. Early termination generally requires mutual agreement and reasonable relocation compensation.
The Real Complication: The Security Deposit
The purpose of a security deposit is to secure the tenant’s performance of the lease. If there is no breach and the property is properly returned at lease termination, the deposit should be refunded in full.
However, after ownership changes, uncertainty may arise:
- The new landlord may argue that they never received the deposit and therefore bear no obligation to refund it.
- The former landlord may argue that since ownership has been transferred, deposit matters should now be handled by the new landlord.
As a result, tenants may face a situation where responsibility is shifted back and forth.
Two Common Legal Theories in Practice
1️⃣ Theory of Actual Possessor Liability
This view considers the deposit to be a “real contract” (要物契約), meaning that actual delivery of the money is required for the legal relationship to be established.
If:
- The former landlord did not transfer the deposit to the new landlord; and
- The new landlord did not actually receive the deposit;
Then the tenant may only seek recovery from the former landlord.
Core idea: Whoever actually holds the deposit bears the refund obligation.
2️⃣ Theory of Transferee Refund Obligation
Another view holds that:
- The lease is the principal contract;
- The security deposit is an accessory obligation arising from the lease.
When ownership transfers and the lease relationship is assumed by the new landlord, the obligations related to the deposit should also transfer.
Therefore, upon lease expiration, the tenant may claim the refund from the new landlord.
In litigation, courts often adopt this view in order to protect tenant interests.
Core idea: When landlord status transfers, corresponding rights and obligations transfer as well.
What Tenants Should Pay Attention To
When ownership changes, tenants should confirm:
- Whether the deposit has been transferred to the new landlord
- Whether written documentation of the transfer exists
- Whether the lease clearly states the deposit amount and custodian
- Whether rent payment arrangements were formally updated
If the new landlord denies receipt and the former landlord becomes unreachable, recovery may become difficult.
What Former and New Landlords Should Consider
Improper handling of deposit transfer may create legal and financial risks.
- The new landlord may need to refund the deposit first and later pursue reimbursement from the former landlord.
- The former landlord may still face claims if no clear transfer documentation exists.
Deposit transfer is not merely procedural — it is a critical risk management step.
Suggested Contract Clause
To avoid ambiguity, the following clause may be added:
The security deposit under this lease, in the amount of NT$____, has been transferred by the original lessor (Former Landlord: ___) on (date) to the transferee (New Landlord: ___) for safekeeping. Upon expiration of the lease and completion of property inspection and expense settlement, the transferee shall refund the full amount to the lessee (Tenant: ___).
A simple clause like this can prevent significant future disputes.
🧞♂️Related Read: What Is a Non-Fixed-Term Lease in Taiwan?
🧞♀️Related Read: How to Prevent Your Lease from Becoming Non-Fixed-Term in Taiwan?
💫Related Read: Is There a Cap on Security Deposits in Taiwan?
🔮 Related Read: What Happens When a Landlord Sells the Property in Taiwan? Can the Tenant Continue Living There?
Conclusion
The sale of a property does not invalidate an existing lease. Under the principle that “Sale Does Not Break Lease,” tenants generally retain the right to continue residing under the original agreement.
In practice, the most problematic issue is not the lease itself, but the transfer and refund of the security deposit. Although different legal interpretations exist, confirming deposit transfer, retaining written documentation, and clearly defining refund responsibility at the time of ownership change can effectively prevent disputes and ensure a smooth conclusion to the lease relationship.
