Fact Sheet 3 - Security Deposits, Interest on Security Deposits, and The Rent Board Fee

Security Deposits

Applicable Law: Security deposits are governed by state law, not the Rent Ordinance. Under Section 1950.5 of the California Civil Code, a landlord may generally collect up to the equivalent of two months rent for deposits on unfurnished apartments and up to three months rent for deposits on furnished apartments. State law requires the landlord to refund deposits within 21 days of the tenant vacating the unit.

What Constitutes a Security Deposit: Before a tenant moves in, a landlord may ask for some type of deposit. No matter what it is called-a key deposit, a pet deposit, a cleaning fee, a damage deposit, a move-in fee, or last month's rent-the law treats this initial payment as a security deposit subject to Section 1950.5 of the Civil Code. There is no such thing as a "non-refundable" security deposit-all money paid in addition to the first month's rent is refundable.

Moving In: For the protection of both the tenant and the landlord, the condition of the unit, room by room, should be memorialized in writing at the outset of the tenancy. This document should be of sufficient detail to ensure that all possible issues like broken windows, scuffed floors, new light fixtures or blinds are noted as to their move-in condition. The same document should be used as the basis for a walk-through inspection prior to the tenant vacating.

Increasing the Deposit: There is nothing in the law that specifically allows the landlord to increase the amount of the security deposit over time, although some landlords believe that the deposit can be brought up to reflect two months of the current rental amount with proper notice. Since this is a matter of state law, the Rent Board does not handle such disputes.

Change of Ownership During the Tenancy: If ownership of the property changes during the tenancy, the landlord may either transfer the deposit to the new owner or return the deposit to the tenant. Tenants should try to make sure that their lease reflects the actual amount held as deposit before ownership changes.

Moving out: State law requires landlords to notify tenants that they have the right to an inspection of the unit within two weeks before they vacate, to determine what costs, if any, will be deducted from their security deposit. If the tenant does not request an inspection, no inspection before the move-out is required. If the tenant requests an inspection, but the parties cannot agree on a date and time for the inspection, the landlord must serve the tenant with at least a 48-hour notice of the time and date of the inspection. If the tenant requests an inspection, and both parties agree on a date and time, the landlord must still serve the tenant with at least a 48-hour notice of the time and date of the inspection. However, the parties can agree in writing to waive a 48-hour notice. If the tenant does not allow access or withdraws the request for inspection, the inspection will not take place and is not required until after the tenant has vacated.

At the time of the inspection, the landlord must leave the tenant with an itemized statement specifying repairs or cleaning that could result in deductions from the security deposit if not corrected by the time of move-out. If the tenant is not present, the statement must be left inside the premises. The statement must also contain specific statutory language reminding the tenant of his or her rights and obligations regarding the security deposit. The law also allows the tenant to fix any identified deficiencies.

Deductions from the Security Deposit: State law allows the landlord to make deductions from a security deposit for certain reasons including: unpaid rent or bills; "reasonable" cleaning charges to bring the unit to the same level of cleanliness as at the inception of the tenancy; failure by the tenant to restore, replace, or return personal property or appurtenances; and/or damage to the unit caused by the tenant or the tenant's guest that exceeds normal wear and tear. What constitutes normal wear and tear is not clearly defined and the Rent Board cannot help you determine that. Ultimately, it is up to the Court to decide the issue based on the facts of the case.

Tenant's Remedy for Landlord's Failure to Refund Deposit: If you are a tenant and feel that the amount of your security deposit refund is not correct, you will either need to go to Small Claims Court in order to attempt to recover the amount, use a mediation/arbitration service, contact the District Attorney's Consumer Fraud Unit and/or consult an attorney. The landlord may be liable for penalties of up to twice the amount of the deposit, in addition to actual damages, for bad faith retention of a security deposit. If you choose to go to Small Claims Court, be aware that your claim cannot exceed $7,500.00 and that California law prohibits attorneys from representing another person at a Small Claims Court hearing.

Interest On Security Deposits

Applicable Law: Security deposit interest is governed by City law, not the Rent Ordinance. Chapter 49 of the San Francisco Administrative Code requires landlords to pay interest annually on deposits held on residential property. Landlords are required to pay interest on all monies held over one year, regardless of what the deposit is called. Interest payments apply to all residential rental units in San Francisco, including those exempt from the Rent Ordinance, with one exception: where the rent for the unit is assisted or subsidized by a government agency, the interest payment requirement does not apply.

Annual Due Date for Payment of Interest: Security Deposit interest must be paid every year on the tenant's "annual due date." For tenancies beginning after September 1, 1983, the annual due date is the same day and month the landlord received the deposit from the tenant. (If the tenant moved in and paid a deposit before September 1, 1983, interest was due on September 1, 1984 and every September 1st thereafter.)

If the tenant vacates before one full year of occupancy, no interest is due. Where a tenant vacates after one year of occupancy but before the next annual due date, the interest payment for the partial-year period must be pro-rated and calculated using the interest rate in effect on the date the tenant vacates.

Calculation of Interest Owed: Generally, the tenant is owed simple interest at the rate in effect when the security deposit interest payment is due. If the deposit held is $1,000.00 and the applicable interest rate is 1.7%, then the interest payment due is $17.00. Pursuant to Chapter 49, if interest is owed for multiple years, the interest may not be compounded. For example, if the deposit held is $1,000.00 and interest for two years is to be paid on the annual due date of November 1, 2005, the landlord would owe the tenant 1.2% or $12.00 for 2004, plus 1.7% or $17.00 for 2005, for a total of $29.00. Other than payment of the past interest owed, Chapter 49 does not provide for any penalties for the late payment of interest.

To receive a list of interest rates for security deposits since September 1983, you can fax it to yourself through our Fax Back system by calling 252-4660 or visit our website at www.sfgov.org/rentboard. The list is also available at our office.

Please note: If the tenant's annual due date fell in the period between August 4, 2002 and June 14, 2003, please contact the Rent Board for special rules that apply for calculating the amount of interest for that period only.

Payment Options: The landlord has the option of paying the security deposit interest to the tenant in the form of either a direct payment or a credit against the tenant's rent. For units that are covered by the Rent Ordinance and subject to the annual Rent Board fee, Section 37A.6 of the San Francisco Administrative Code allows the landlord to deduct 50% of the annual Rent Board fee from the security deposit interest payment due to the tenant each year.

Security Deposit interest must be paid within two weeks of the date the tenant vacates. However, subject to the limitations and requirements set forth in Section 1950.5(e) of the California Civil Code, a landlord may retain a portion of the unpaid accrued interest where the amount of the security deposit alone is insufficient to cover unpaid rent, repair of damages to the premises caused by the tenant, or necessary cleaning of the premises.

Tenant's Remedy for Landlord's Failure to Pay Security Deposit Interest: Generally, disputes concerning security deposit interest are decided in Small Claims Court. The Rent Board does not have jurisdiction over these disputes and the Rent Board staff cannot give legal advice concerning these issues. Please consult an attorney or appropriate agency for specific advice.

The Rent Board Fee

Applicable Law: Chapter 37A of the San Francisco Administrative Code allows the City to collect a per-unit fee for each residential dwelling unit that is subject to the Rent Ordinance. This fee funds the cost of operating the Rent Board. The Rent Board fee is billed to the landlord each year on the property tax statement, and the law permits the landlord to collect a portion of the Rent Board fee from those tenants in occupancy as of November 1st of each year.

Deduction of the Rent Board Fee from Security Deposit Interest Payment: Section 37A.6 of the Administrative Code currently allows the landlord to recover 50% of the Rent Board fee from the tenant by deducting it from the security deposit interest payment due to the tenant each year. If there is no security deposit held by the landlord, then the landlord may bill the tenant for the fee directly. Landlords who pay the security deposit interest annually instead of giving the tenant an equivalent rent credit, may also bill for the Rent Board fee separately rather than deducting it from the interest payment owed.

The billing statement must specifically state the fee amount owed by the tenant for each year and the amount, if any, of security deposit interest due the tenant for each year owing. The bill should also state that the purpose of the fee is to fund the Rent Board, and that the fee is due and payable within 30 days of the date of the bill.

Exemption from Payment of the Rent Board Fee: Certain dwelling units are exempt from the Rent Board fee, including owner-occupied units where no tenants also reside with the owner in the unit. Units where the rent is controlled or regulated by a government agency, including Section 8 certificate and voucher programs administered by the San Francisco Housing Authority, are also exempt from payment of the fee. Refer to Section 37A.1 of the Administrative Code for a complete list of exemptions. Chapter 37A is available for review at the Rent Board's office. It can also be found on our website at www.sfgov.org/rentboard.

Collection of Past Due Rent Board Fees: Landlords may "bank" the Rent Board fee since November 1999 and collect it in a later year. This means that a landlord does not have to collect the fee in the year that it was due, but is entitled to collect the Rent Board fee in later years. Banking only applies to fees assessed from November 1999 on. To receive a list of prior Rent Board fees since 1999, you can fax it to yourself through our Fax Back system by calling 252-4660 or visit our website at www.sfgov.org/rentboard. The list is also available at our office.

Landlord's Remedy for Tenant's Failure to Pay Rent Board Fee: A tenant's failure to pay the Rent Board fee is not a just cause for eviction under the Rent Ordinance. The landlord will have to go to Small Claims Court in order to collect the fee.

July 2006