Landlords to See New Security Deposit Regulations

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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