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While it is done by tenants frequently, it is not permitted per the lease or the month to month tenancy. The security is solely to be used by the landlord for damages to the premises .... if you do not return them to the landlord in the same condition you received it, except for reasonable wear and tear.
This is information only, NOT legal advice. No attorney-client relationship has been created. Consult an attorney in your state for legal advice regarding your issue.
He can sue for the amount of your security that he decides he would have retained from it for damages to the premises (reasonable wear and tear excepted) when you vacate.