Case closed.
I chatted with them on Saturday and told them that I had absolutely no intentions of signing any "new lease" and that they had absolutely no rights to justify action. They gave me their side of the story for wanting to hike the security deposit too. Note: I toured the house while the residents were still in it, so I hadn't seen it vacated yet. The folks who lived there before me did a number on some of the walls and such. For example, they put a rather large hole in one of the upstairs hallways, and then covered it up by buying some additional matching wallpaper and simply gluing it over the hole. The hardwood floors were pretty messed up when they moved the dining room table out too. The damage was obviously a lot more than the measly deposit. The occupant did a nice job of covering it up just enough to not be noticed until it was inspected closely though. Their lease expired on May 31st, and mine began the 1st of June, but I was out of the state on business until a couple of days ago. With our approval, the landlord wanted to (at their expense) have a cleaning crew come in and spruce the place up before I moved in. Thus, they found the damage about a week ago. They are going to be having the floors refinished, the wall repaired, rooms painted, etc. Since the damage was just discovered, the work couldn't be completed before I moved in. They wanted to play the "cover your ass" game and get a larger deposit since they got burned.
Because the repairs to the house will be an inconvenience to me, here is the deal that I orchestrated and they agreed to. The last months rent (already paid) will be placed in escrow and will serve the purpose of insurence as an additional security deposit. One month prior to my lease expiration, I will grant an inspection of the occupied house for the purposes of uncovering any damage not considered normal wear and tear. Assuming that there are no major damages, the money will be removed from escrow and used as payment of the final month's rent. In the event of damages, neither myself nor my roommates will be liable for more than the amount in escrow. In addition, all repairs for damages caused by the previous occupants must be done with a minimum one week's prior notice, and rent will be at a reduced rate until the repairs are completed to my satisfaction.
Yes, I'm still in college, but NO, I'm not a brain dead moron without any contract or negotiation experience. I've managed my fair share of departments and businesses, so its always fun to catch people off guard when they assume that you are a pushover
Beezil: Every other place that I have rented required a large deposit like you mentioned. These folks are an older couple, and like I said, they don't seem to really know what they are doing.
Thanks for all of the great links and info folks!