Security deposits, the money renters plunk down as a safeguard against damages, can account for a big chunk of many people's spare cash. Landlords often hang on to that money when tenants move - sometimes improperly, advocates charge.
Losing those funds can be devastating. Just ask Anne Williams. When she and her two daughters moved out of a two-bedroom Newark apartment last year after a 2 1/2-year tenancy, the property management kept her $2,216 security deposit for reasons she disputed. As a result, her family was left scrambling for a place to live for three months as she tried to cobble together money for a new apartment.
"They said I owed $350 on top of the money I already paid," she said. "We cleaned that apartment from top to bottom, even spackled tiny holes. I took down and washed and rehung all the mini-blinds and replaced a couple that were broken - but they charged me to replace all of them."
Now a proposed California law would tighten safeguards on security deposits, mandate penalties if landlords are found to have improperly withheld the funds, and establish controls for how they hold the money.
"State law specifies that landlords can use security deposits when tenants move out for rent that's left owing, to fix damages beyond ordinary wear and tear, and to return the unit to the level of cleanliness it had when they moved in," said Dean Preston, executive director of San Francisco renters' advocacy group Tenants Together. "But landlords often withhold deposits with no explanation. Many tenants expect never to see that money again."
Separate accounts
The bill, which landlord organizations oppose, would require rental owners to keep security deposits in accounts separate from other funds, such as rents, and pay interest on the money to tenants. And if landlords are found to have wrongly retained security deposits, the bill mandates that they pay double the withheld amount as a penalty.
"Security deposits for many can represent one of their largest assets," said state Sen. Mark Leno, D-San Francisco, who is sponsoring the bill, SB603, which passed the Judiciary Committee and should go to the full Senate this month. "We want to ensure some fairness so the interest earned on a deposit finds its way to the tenant's pocket. Where else in the business world does one put down significant amounts of cash and not expect to have it returned, and with interest, at the end of the business transaction?"
But landlords say paying interest would be cumbersome.
"The bottom line for nearly all rental owners is it will cost them more to pay the interest than the tenant will receive," said Debra Carlton, a spokeswoman for the California Apartment Association, which opposes the proposed law.
The bill would set the interest rate at the Federal Reserve six-month CD rate, which last year was 0.44 percent. "With all the disclosures, mailings and 1099s (tax forms), to get the tenants four bucks interest on $1,000 security deposit would cost the landlord from $10 to $15," Carlton said.
Several California cities, including San Francisco, Berkeley, Hayward and East Palo Alto, already require payment of interest on security deposits.
Leno said the bill's requirement that deposits be held in a separate account protected by the Federal Deposit Insurance Corp. recognizes that the foreclosure debacle caused thousands of tenants to lose their security deposits when banks took ownership of their landlords' rental properties.
Going to court
Currently and under the bill, tenants who believe a deposit was improperly withheld have the recourse of going to small claims court - "an intimidating process for most people," Leno said, noting that renters who move to a different area rarely have the resources to return to town for a court case.
While judges now have the discretion to award damages, they rarely do so, advocates said. Tenants Together said it reviewed small claims actions filed in February in San Francisco, Oakland and Hayward. Of 41 security-deposit cases that received a judgment, the tenant prevailed 29 times, but in only two cases were penalties assessed against the landlord, it said.
Charley Goss, director of government and community affairs for the San Francisco Apartment Association, which represents landlords in the city, said his group has no problem with mandating double damages in such disputes.
"We always recommend our owners act in good faith and only deduct for damages to the apartment, and take in account normal wear and tear, and the lifetime of the appliances and carpet," he said. "We cannot defend someone not acting in good faith, so we are fine with that provision."
But Carlton said landlords believe the new bill "adds penalties to a statute that, quite frankly, is already pretty unclear." In a position paper, her trade group wrote that the changes would create a strong incentive to sue property owners. "Every tenant with a pulse will challenge their deposit return," it said.
She would rather see a better definition of the meaning of ordinary wear and tear.
"That's where all the fights are," she said. "Perhaps the tenants didn't clean the unit, or the carpeting is in disarray or it needs paint. We want to clarify the statute so the expectations are consistent."
New paint and carpet
Liliana Juarez and her husband, David, faced the conundrum of what constitutes wear and tear. They paid a $2,700 deposit for an East Palo Alto apartment where they lived with their two toddlers for a little over a year.
"When I moved out in February, I left the apartment clean, no garbage, no nothing," she said. "I vacuumed the carpets and washed the walls."
California law requires landlords to refund or give an accounting of security deposit money within three weeks after a tenant moves.
"A month and a half passed, and I went back to the office and said, 'I want my deposit,' " Juarez said. "They showed me a paper saying they had to paint the apartment and put in new carpet, and the deposit is all gone."
For Liliana, a teacher's aide, and David, a line cook, $2,700 is more than a month's wages, she said.
"We respected our agreement, we paid our rent on time and we cleaned the apartment," she said. "I was thinking everything is going to be OK. That is a lot of money for us to lose."
Temporary housing
In Williams' case, when she moved out, her apartment's management company withheld the deposit and presented her with a lengthy list of repairs ranging from changing light bulbs to installing new carpets to replacing a screen door that she had reported as broken when they moved in.
Williams was counting on the refund to serve as a deposit for a new apartment she had lined up. Without the money, it fell through, and her family ended up borrowing from relatives to stay in hotels for about three months. They eventually found an apartment.
"We have a little dachshund, Buddy, and the kids made me promise we wouldn't get rid of him," she said. "But it was really hard to find a place in their school district that would accept a dog."
Handling the money
New proposals: SB603 would change handling of security deposits by:
-- Requiring landlords to hold deposits in separate, FDIC-insured accounts
-- Requiring landlords to pay tenants interest on deposits at the six-month CD rate
-- Mandating double damages if landlords are found to have improperly withheld deposits
Current requirements: Previous law, which won't change, says:
-- Total deposits cannot exceed two months' rent for unfurnished units. First month's rent is not part of the deposit.
-- Deposits must be returned or accounted for within three weeks of a tenant moving.
-- Tenants can request a landlord inspection before moving to give them a chance to correct any problems that might cause a deposit withholding.
-- Deposit disputes are heard in small claims court.
Source: Tenants Together, California Dept. of Corporations
Adding it up
The state has requirements, and may add more, for how landlords deal with security deposits, which add up to a lot of money.
California
5.6 million Number of occupied rental units in the state
$1,174 Average monthly rent
$5.6 billion Deposits held by landlords*
*Assumes $1,000 average deposit, a bit less than a month's rent
San Francisco
214,300 Number of rental units in the city
$2,127 Average monthly rent
$456 million Deposits held by landlords*
*Assumes deposits equal to one month's rent.
Source: U.S. Census American Community Survey, San Francisco Rent Board
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