This is for Minnesota.
We have a tenant who moved out in May 31, 2012. He gave his notice 4/25/12
He was not on a lease but was a holdover tenant. He signed a security deposit agreement when he moved in stating what the requirements were to get his deposit back namely, a 59 day written notice.

He's using the argument that the 59 days started on the 25th of April so he shouldn't be charged for the entire month. The security deposit agreement clearly states 59 days due on the same day as rent or sooner. He had a rent increase coming due June 1 and got a job out of state and said he had to leave the end of May.
His deposit was $500 back in 2008. We told him in his letter within the 21 days were allowed as to why were keeping his deposit and that he owed a balance of $115. Then he said about the notice on 4/25 and we owe him $70 and to PAY UP!

Just emailed us a copy of the law stating when a deposit or letter as to why the deposit is with held needs to be sent out or landlord could have to pay double.

We know this that's why we sent his letter within 21 days stating the reason as proper notice not given. I apologize for the length but got to know.

Section 504B.178 of the Minnesota statutes does not give you the authority to apply a notice date to the security deposit. You must return the deposit in 3 week or you can be held for treble damages

My initial reaction was that I've never heard of a notice imposed on the security deposit. However, if you required 59 days notice to vacate, then you might have a case, I'd need to know what the exact wording of the lease was.

On the other hand you sent the notice within the time frame so I don't see you liable for trebale damages, but you may have to return some of all of the depost.

When was rent due?

Well here's one problem. We cannot find his lease copy we had only the security deposit agreement which I believe is from Minnesota Multi Housing Assoc.
The guy lived here for 5 years and was well aware of our policy about moving. We've even posted it and the dates notice needs to be given in all buildings we manage.( But that doesn't matter legally) WE gave him 59 plus 3 days or so notice his rent would go up June 1 ( But again without the lease not looking good)

I wanted to email him and tell him to look up notice periods where he found deposit returns. So at least he would know it's due on the 1 of a month as was his rent so at least he would know it's not from 4/25/12. But no lease probably means he only has to give 30 days I would assume. I'm only the manager but the owners wouldn't like if we have to give this guy his money. Should have just sent him the $70 bucks he wanted.

Looking at Section 504B.178. It says nothing about a notice required for return of the deposit. As I said this is very unusual. Time frames for notice are on when to vacate. And absent a lease to prove it, The notice period is one rental period, so notice given on 4/25 to be out by 6/1 would be sufficient.

Unless you have some other valid reason to use the security deposit I'd return it.

What is your rationale for wanting to keep the deposit? If you go to court the judge will be looking for damages and I do not see you have any damage. This appears to be unneccsary punitive language to require such notice. I think you are on totally thin ice and should return the deposit