As it stands, security deposits for unfurnished apartment rentals in California cannot exceed two months’ rent, must be returned or accounted for within three weeks of a tenant vacating, and any disputes are heard in small claims court.
Under the proposed Senate Bill 603 (SB603), landlords would be required to hold security deposits in separate insured accounts and pay interest on deposits (which the city of San Francisco already requires) at the Federal Reserve six-month CD rate (currently 0.26%).
The proposed Bill would also impose a penalty of twice any amount that’s deemed to have been improperly witheld from a deposit or interest owed by a landlord. Passed in committee on May 7, SB603 is scheduled for its third reading in the Senate this afternoon.
UPDATE: To clarify a bit of confusion with respect to the required interest payments on security deposits, the proposed payment of interest at the Fed’s six-month CD rate “shall not apply in any city, county, or city and county that by charter, ordinance, or regulation requires the payment to tenants of interest on security, nor does it preempt a local ordinance that requires the payment of security deposit interest.”
Security deposit rules in Leno legislation [Chronicle]
Senate Bill 603: Landlord and Tenant Security Deposit Legislation [ca.gov]

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Comments from “Plugged-In” Readers

  1. Posted by Michael

    I wonder if this will effect master tenants like myself, since it’s my understanding that we’re treated like landlords in many situations? Right now the landlord holds the entire deposit from me, so when I repay an exiting roommate their deposit, it’s really the deposit the incoming roommate is paying. When the whole apartment finally moves out, the deposit from the landlord will get divided up, but until then, he only wants to deal with one person for rent, deposits, all that. Would someone like me need to have the separate account and pay the roommates interest?

  2. Posted by wiger toods

    Will existing security deposits be grandfathered?

  3. Posted by R

    This appears to conflict with SF law.. So I assume it trumps SF law?
    Which means that it actually saves me money, because the six-month CD rate is lower than SF’s required interest rate? Cool.

  4. Posted by anon

    R,
    State law trumps city law…and Federal law trumps State law.

  5. Posted by R

    Yes, my question was more if the state law says .26% an the city law says .40%, does the .26% trump the .40%, or does .40% come in to play after the .26%?

  6. Posted by SocketSite

    my question was more if the state law says .26% an the city law says .40%, does the .26% trump the .40%, or does .40% come in to play after the .26%?
    From the text of the legislation as linked above: The payment of interest at the Fed’s six-month CD rate “shall not apply in any city, county, or city and county that by charter, ordinance, or regulation requires the payment to tenants of interest on security, nor does it preempt a local ordinance that requires the payment of security deposit interest.”

  7. Posted by Rillion

    It really depends on how it is written. It can be written to completely trump SF’s law, or it can be written as a baseline which individual muncipalities can build on. As currently drafted SF’s interest rate would be effective, not that of the State law (from the section on paying/accruing interest on the security deposit):
    (4) This subdivision shall not apply in any city, county, or city and county that by charter, ordinance, or regulation requires the payment to tenants of interest on security, nor does it preempt a local ordinance that requires the payment of security deposit interest

  8. Posted by R

    See, I knew someone had the time to read it!
    So alas, doesn’t save me a penny, does cause slightly more aggravation to open separate bank accounts.

  9. Posted by Helmit

    Well, Mark Leno wrote the bill, so he would not water down San Francisco Rent Boards rules that require a higher interest rate, hence the local exception. I do not mind paying the interest, but keeping the money in a separate account is a pain in the butt.

  10. Posted by MarinaBoy

    So who is going to pay the fees on the account? Do you need individual accounts for each tenant or just one master account for all your tenants?

  11. Posted by Mark F.

    You could handle this like one infamous and disnonest San Francisco landlord does: Never give the tenant back his security deposit and make them fight for it. Most won’t bother, even if a few do show up in court.

  12. Posted by Rillion

    Overall I was pretty fortunate with landlords. Got full deposits back from 2 out of 3 without any hassle. Got nothing back from one though and he never sent me an itemized list. Of course I did move out because there was a fire in the unit and it was uninhabitable from the smoke damage, lack of windows (fire department smashed them all to let smoke out after the fire) and the carpets were all ruined from the water used to put out the fire. I did call up and ask for my security deposit back though, just for giggles.

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