At the time of the signing of the leases, plaintiffs claim, they turned over the security deposits of the tenants to Prime, which, on or about July 1, 2001, had entered into possession of the subject properties pursuant to the terms of the net leases, had taken over their operation and had begun collecting rents and collecting and holding tenant security deposits. Prime subsequently defaulted on the monthly rental payments for June, July and August 2002, causing plaintiffs to draw on the letters of credit. In violation of the lease agreements, Prime thereafter failed to replenish the letters of credit, allowing them to drop to a {**12 AD3d at 88}zero balance, which resulted in a material breach of the leases. Prime also failed to pay the September 2002 base rent for all three properties, plus interest and late charges.
Based on its defaults and failure to pay the September 2002 rent, Prime surrendered possession and control of all three properties, effective October l, 2002, as part of which it delivered some but not all of the rent security in its possession. As to the deposits not turned over, Prime claimed a right of offset against monies it alleged were owed it by plaintiffs as a result of its having allegedly prepaid real estate taxes and water and sewer charges. Prime allegedly held $112,719.09 in security deposits for 6-10 East 48th Street (Ruradan), of which only $29,405.41 has been turned over, $416,339.61 for 1100 Madison Avenue (Gerel), of which only $193,355.15 has been turned over and $242,023.78 for 250 East 39th Street (Timston), of which only $70,355.75 has been turned over. Prime freely admits having used the tenant security deposits to "adjust" for certain prepayments.