Your attorney is in the best position to advise you. Going to trial is always a risk. The security deposit is normally for damages and not for rent. If you owe rent, then that would be paid and upon vacating the premises in good condition, then you would get your security back. If you can prove constructive eviction, then you would get an abatement, either partial or complete depending on the extent of the situation.
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Now you know the reason that the landlord's attorney did not broach the return of the security deposit to you in your initial discussion, and now that you did, you have the full measure of the offer made to you.
You did not mention beforehand that you had legal counsel. Your first posting mentioned that the landlord had an attorney and that you were negotiating with the attorney.
No one but your own attorney may express to you in a meaningful manner what risk you have to proceeding to a trial instead of settling. On the other hand, your negotiation skills seem limited to talking to the landlord's attorney and then posting on AVVO for your next move.
That is a method that cannot work well for you. If your attorney does not believe you should proceed to a trial and you do not like the proposed settlement and your attorney will not intervene into the negotiations, what more can an attorney posting a response suggest?
It is not responsible to interfere with an existing attorney client relationship and you should have disclosed the fact that you had an attorney before.
The answer provided to you is in the nature of general information. The general proposition being that you should try to avoid a bad outcome if you can.