The most common dispute between a landlord and former tenant is the withholding of some or all of a security deposit. This article will highlight the laws governing security deposits in residential tenancies. It is important for a landlord to understand the intent of such a deposit. Under the law, the landlord holds the deposit as security in the event of a default by the tenant. However, until such default occurs, the deposit remains the property of the tenant, and the landlord has a duty to hold it and to account for it.
A. Amount.
The amount of the deposit that a landlord may hold is limited by statute and possibly local ordinance. Therefore, the landlord must be aware of any local laws affecting the landlord/tenant relationship. Generally, a landlord may collect the first month’s rent, plus two or three months’ rent, depending on whether the unit is furnished or unfurnished.
Many leases and rental agreements require the tenant to pay, as part of a security deposit “last month’s rent”. This is an ambiguous term and could lead to possible disputes at the end of the tenancy. Many tenants believe that such a provision means that they do not have to pay the last month’s rent when they move out. However, if the rent has increased over time, the landlord may contend that the tenant still owes the difference between the “last month’s rent” paid at the inception of the tenancy and the current monthly rent at the end of the tenancy. If the tenant lived in the unit for many years, this dispute can be significant as the rent may have doubled or tripled during the tenancy.
The answer may depend on the specific language in the lease or rental agreement. If the language of the agreement merely states that the deposit is for “last month’s rent”, then the tenant’s interpretation may be correct. If however, the agreement states that the deposit is “security” for last month’s rent, then the landlord would likely be able to claim the additional rent. Keep in mind that a court will construe any ambiguity in an agreement against the party who drafted it, which in this case is the landlord, even if the agreement
used was a “form” that the landlord didn’t actually write.
B. Interest.
Currently, there is no state law requiring landlords to hold tenants’ security deposits in an interest bearing account for the benefit of the tenant. However, state legislation has been introduced (unsuccessfully) several times to impose such an obligation on landlords. In addition, numerous cities do place such an obligation on
the landlord. Therefore, the landlord must be aware of local laws that may apply in this situation.
C. Purpose.
California law specifically allows the landlord to use a tenant’s security deposit for four purposes:
- For unpaid rent;
- For cleaning the rental unit when the tenant moves out, but only to make the unit as clean as it was when the tenant first moved in;
- For repair of damages, other than normal wear and tear, caused by the tenant or the tenant’s guests; and
- Restoring, replacing or returning personal property if authorized by the lease, other than because of normal wear and tear.
A landlord can only withhold those amounts from the deposit that are reasonably necessary for these purposes. Also, a deposit can never be “non-refundable”, irrespective of any term in the lease to the contrary.
D. After Moveout.
Under California law with respect to a residential lease, the landlord must within 21 days after the tenant moves out either:
- Provide a full refund of the security deposit, or
- Mail or personally deliver to the tenant an itemized statement that lists the amounts of any deductions from the security deposit and the reasons for the deductions, together with a refund of any amounts not deducted.
In addition, the landlord must provide copies of receipts for any third party repairs which justify a deduction from the security deposit.
The following rules apply:
a. If the landlord did the work himself, or hired workers to do it, the itemization must describe the work performed, including the time spent and the hourly rate charged. The hourly rate must be
reasonable.
b. If a third person did the work, the landlord must provide copies of the person’s or business’ invoice or receipt. The landlord must provide the person’s or business’ name, address, and telephone number on the invoice or receipt, or in the itemized statement.
c. If the landlord deducted for materials or supplies – the landlord must provide a copy of the invoice or receipt. If the item used to repair or clean the unit is something that the landlord purchases
regularly or in bulk, the landlord must reasonably document the item’s cost (for example, by an invoice, a receipt or a vendor’s price list)
d. The landlord is allowed to make a good faith estimate of charges and include the estimate in the itemized statement where: (1.) the repair is being done by the landlord or an employee and cannot reasonably be completed within the 21 days, or (2.) services or materials are being supplied by another person or business and the landlord does not have the invoice or receipt within the 21 days. In either situation, the landlord may deduct the estimated amount from your security deposit. In
situation (2), the landlord must include the name, address and telephone number of the person or business that is supplying the services or materials. Within 14 calendar days after completing the repairs or receiving the invoice or receipt, the landlord must provide to the tenant a correct itemized statement, the invoices and receipts, and any refund to which the tenant are entitled.
The landlord is not required to send the tenant copies of invoices or receipts, or a good faith estimate, if the repairs or cleaning cost less than $125 or if the tenant signs a written waiver of his/her right to receive them. The waiver is effective only if signed by the tenant at the time of or after a notice to terminate the lease or three-day notice is given, or no earlier than 60 days prior to the expiration of a fixed term lease. Also, it is important to keep in mind that some courts will only allow a landlord to keep such portion of the deposit so as to compensate the landlord for damages taking into account the remaining useful life of the thing damaged, such as worn carpeting etc.
E. Sale of the Building.
If a landlord sells the building to a new owner, with respect to security deposits held, the landlord must do one of two things: the landlord can either transfer the deposits to the new landlord or refund the security deposits to the tenant following the sale. The selling landlord may make itemized deductions for the purposes allowed by law before the transfer or refund, but the landlord must provide the tenant with a written itemization. (see above.) Also, the selling landlord must notify the tenant in writing that their deposits are being transferred to the new owner.
Part 2 of this article will cover issues related to moveout inspections, specific examples of deductions and legal proceedings concerning security deposits.
The foregoing is intended for general information purposes only. Specific legal questions should be directed towards your attorney. Craig S. Sunada may be reached at (310) 544-7161 and craig@sunadalawfirm.com.