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California landlords are likely to see a change soon in security deposit regulations, as a bill to clarify these rules moves toward final passage.

Under this proposed statewide law, landlords will be required to pay interest on security deposit funds, and to disclose to tenants where the funds are being held.

Additionally, the bill clarifies the rights of tenants to seek damages for wrongful withholding of deposits.

Existing law authorizes a court to award statutory damages of up to twice the amount of the deposit, in addition to actual damages, for ‘bad faith’ retention or demand of replacement deposits.

This bill would instead require a court to award these statutory damages for bad faith claims. Absent bad faith, the bill would require an award of statutory damages of not less than the amount of the security deposit improperly withheld, in addition to actual damages, for an unlawful retention or demand of replacement security deposit funds.

Landlords would be liable to the tenant for the interest on a security deposit from the commencement of the tenancy. Under the current version of the bill, interest is due on the second month of each calendar. The deposit interest rate will be tied to the federal reserve discount rate, and is to accrue for each complete month in which the security is held. Interest payments cannot be withheld along with a deposit.

Also, the new law will require all rental deposits to be held on behalf of the tenant in federally insured accounts, and deposits cannot be commingled with the landlord’s personal funds. A landlord will be required to notify the tenant of the name and address where the account was established.

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  • RP Janz

    More stupid regulations, with adverse affects for small owner. Small account monthly fees: $10 +. Past: we have paid fees of $120 for $15 in interest. Now we keep cash in company safe deposit box & pay interest out-of-our-pockets.
    Solution: have tenant pay deposit by post-dated check (last day of lease) and hold check until they leave. If they renew have new check issued.

    Just hope California doesn’t tax imaginary money. Oh ya its California, they probably will.

  • In Illinois we have had this law for years so do what we do here in Illinois – do not take security deposit at all …instead ask for non-refundable moving fee and or prepayment of rent for the last month of the lease or last few months of the lease. Meaning the renter will not pay security deposit but will pay for month 11 and 12 upfront. This way there is no security deposit, and you are protected in case something happens having tenants money

    Most of the “helpful” laws you can get around if you are creative and know exactly what law you trying to fight 🙂

  • to RP Janz – what if they close the checking account before the end of the lease and than stop paying the rent?
    Or what is someone breaks in to your office and steals that check, you open your self for more liability than you think.

    Don’t hold anybody checks just do Lease prepayment it’s legal.

  • Mike Koleszar

    A $1,500 security deposit in a Wells Fargo savings account is yielding 1 to 2 cents each month. Would a check for about 18 cents then need to be mailed to the tenant after a year?

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