Amended in Senate May 24, 2013

Amended in Senate April 29, 2013

Senate Bill No. 603

Introduced by Senator Leno

February 22, 2013

An act to amend Section 1950.5 of the Civil Code, relating to landlord and tenant.

LEGISLATIVE COUNSEL’S DIGEST

SB 603, as amended, Leno. Landlord and tenant: security deposit.

Existing law governs the duties of a landlord and the rights of a tenant with respect to demanding, holding, and returning the security for a rental agreement for residential real property, as specified.

Existing law authorizes a court to award statutory damages of up to twice the amount of the security, in addition to actual damages, for the bad faith claim or retention by a landlord or the landlord’s successors in interest of the security or any portion thereof in violation of these provisions of existing law, or the bad faith demand of replacement security in violation of existing law.

This bill would instead require a court to award the above-described statutory damages for the bad faith claim or retention of security or the bad faith demand of replacement security by a landlord or the landlord’s successor in interest. Absent bad faith, the bill would require an award of statutory damages of an amount equal to the amount improperly withheld, in addition to actual damages, for an unlawful claim or retention or demand of replacement security.

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The bill would require a tenant to be paid interest on security, as specified, and would require a landlord to provide notice of the tenant’s right to this interest, except as specified.

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The bill would also require all rental deposits to be held by the landlord on behalf of the tenant in an account at a financial institution that is insured by an agency of the federal government and would prohibit the commingling of rental deposits with the personal funds of the landlord. The bill would require a landlord to notify the tenant of the financial institution the name and address of where the account was established.

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Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1950.5 of the Civil Code is amended to
read:

1950.5.  

(a) This section applies to security for a rental
agreement for residential property that is used as the dwelling of
the tenant.

(b) As used in this section, “security” means any payment, fee,
deposit, or charge, including, but not limited to, any payment, fee,
deposit, or charge, except as provided in Section 1950.6, that is
imposed at the beginning of the tenancy to be used to reimburse
the landlord for costs associated with processing a new tenant or
that is imposed as an advance payment of rent, used or to be used
for any purpose, including, but not limited to, any of the following:

(1) The compensation of a landlord for a tenant’s default in the
payment of rent.

(2) The repair of damages to the premises, exclusive of ordinary
wear and tear, caused by the tenant or by a guest or licensee of the
tenant.

(3) The cleaning of the premises upon termination of the tenancy
necessary to return the unit to the same level of cleanliness it was
in at the inception of the tenancy. The amendments to this
paragraph enacted by the act adding this sentence shall apply only
to tenancies for which the tenant’s right to occupy begins after
January 1, 2003.

(4) To remedy future defaults by the tenant in any obligation
under the rental agreement to restore, replace, or return personal
property or appurtenances, exclusive of ordinary wear and tear, if
the security deposit is authorized to be applied thereto by the rental
agreement.

(c) (1) A landlord may not demand or receive security, however
denominated, in an amount or value in excess of an amount equal
to two months’ rent, in the case of unfurnished residential property,
and an amount equal to three months’ rent, in the case of furnished
residential property, in addition to any rent for the first month paid
on or before initial occupancy.

(2) This subdivision does not prohibit an advance payment of
not less than six months’ rent if the term of the lease is six months
or longer.

(3) This subdivision does not preclude a landlord and a tenant
from entering into a mutual agreement for the landlord, at the
request of the tenant and for a specified fee or charge, to make
structural, decorative, furnishing, or other similar alterations, if
the alterations are other than cleaning or repairing for which the
landlord may charge the previous tenant as provided by subdivision
(e).

(d) Any security shall be held by the landlord for the tenant who
is party to the lease or agreement. The claim of a tenant to the
security shall be prior to the claim of any creditor of the landlord.

(e) The landlord may claim of the security only those amounts
as are reasonably necessary for the purposes specified in
subdivision (b). The landlord may not assert a claim against the
tenant or the security for damages to the premises or any defective
conditions that preexisted the tenancy, for ordinary wear and tear
or the effects thereof, whether the wear and tear preexisted the
tenancy or occurred during the tenancy, or for the cumulative
effects of ordinary wear and tear occurring during any one or more
tenancies.

(f) (1) Within a reasonable time after notification of either
party’s intention to terminate the tenancy, or before the end of the
lease term, the landlord shall notify the tenant in writing of his or
her option to request an initial inspection and of his or her right to
be present at the inspection. The requirements of this subdivision
do not apply when the tenancy is terminated pursuant to subdivision
(2), (3), or (4) of Section 1161 of the Code of Civil Procedure. At
a reasonable time, but no earlier than two weeks before the
termination or the end of lease date, the landlord, or an agent of
the landlord, shall, upon the request of the tenant, make an initial
inspection of the premises prior to any final inspection the landlord
makes after the tenant has vacated the premises. The purpose of
the initial inspection shall be to allow the tenant an opportunity to
remedy identified deficiencies, in a manner consistent with the
rights and obligations of the parties under the rental agreement, in
order to avoid deductions from the security. If a tenant chooses
not to request an initial inspection, the duties of the landlord under
this subdivision are discharged. If an inspection is requested, the
parties shall attempt to schedule the inspection at a mutually
acceptable date and time. The landlord shall give at least 48 hours’
prior written notice of the date and time of the inspection if either
a mutual time is agreed upon, or if a mutually agreed time cannot
be scheduled but the tenant still wishes an inspection. The tenant
and landlord may agree to forgo the 48-hour prior written notice
by both signing a written waiver. The landlord shall proceed with
the inspection whether the tenant is present or not, unless the tenant
previously withdrew his or her request for the inspection. Written
notice by the landlord shall contain, in substantially the same form,
the following:

 

“State law permits former tenants to reclaim abandoned personal
property left at the former address of the tenant, subject to certain
conditions. You may or may not be able to reclaim property without
incurring additional costs, depending on the cost of storing the
property and the length of time before it is reclaimed. In general,
these costs will be lower the sooner you contact your former
landlord after being notified that property belonging to you was
left behind after you moved out.”

 

(2) Based on the inspection, the landlord shall give the tenant
an itemized statement specifying repairs or cleanings that are
proposed to be the basis of any deductions from the security the
landlord intends to make pursuant to paragraphs (1) to (4),
inclusive, of subdivision (b). This statement shall also include the
texts of paragraphs (1) to (4), inclusive, of subdivision (b). The
statement shall be given to the tenant, if the tenant is present for
the inspection, or shall be left inside the premises.

(3) The tenant shall have the opportunity during the period
following the initial inspection until termination of the tenancy to
remedy identified deficiencies, in a manner consistent with the
rights and obligations of the parties under the rental agreement, in
order to avoid deductions from the security.

(4) Nothing in this subdivision shall prevent a landlord from
using the security for deductions itemized in the statement provided
for in paragraph (2) that were not cured by the tenant so long as
the deductions are for damages authorized by this section.

(5) Nothing in this subdivision shall prevent a landlord from
using the security for any purpose specified in paragraphs (1) to
(4), inclusive, of subdivision (b) that occurs between completion
of the initial inspection and termination of the tenancy or was not
identified during the initial inspection due to the presence of a
tenant’s possessions.

(g) (1) No later than 21 calendar days after the tenant has
vacated the premises, but not earlier than the time that either the
landlord or the tenant provides a notice to terminate the tenancy
under Section 1946 or 1946.1, Section 1161 of the Code of Civil
Procedure, or not earlier than 60 calendar days prior to the
expiration of a fixed-term lease, the landlord shall furnish the
tenant, by personal delivery or by first-class mail, postage prepaid,
a copy of an itemized statement indicating the basis for, and the
amount of, any security received and the disposition of the security,
and shall return any remaining portion of the security to the tenant.
After either the landlord or the tenant provides notice to terminate
the tenancy, the landlord and tenant may mutually agree to have
the landlord deposit any remaining portion of the security deposit
electronically to a bank account or other financial institution
designated by the tenant. After either the landlord or the tenant
provides notice to terminate the tenancy, the landlord and the tenant
may also agree to have the landlord provide a copy of the itemized
statement along with the copies required by paragraph (2) to an
email account provided by the tenant.

(2) Along with the itemized statement, the landlord shall also
include copies of documents showing charges incurred and
deducted by the landlord to repair or clean the premises, as follows:

(A) If the landlord or landlord’s employee did the work, the
itemized statement shall reasonably describe the work performed.
The itemized statement shall include the time spent and the
reasonable hourly rate charged.

(B) If the landlord or landlord’s employee did not do the work,
the landlord shall provide the tenant a copy of the bill, invoice, or
receipt supplied by the person or entity performing the work. The
itemized statement shall provide the tenant with the name, address,
and telephone number of the person or entity, if the bill, invoice,
or receipt does not include that information.

(C) If a deduction is made for materials or supplies, the landlord
shall provide a copy of the bill, invoice, or receipt. If a particular
material or supply item is purchased by the landlord on an ongoing
basis, the landlord may document the cost of the item by providing
a copy of a bill, invoice, receipt, vendor price list, or other vendor
document that reasonably documents the cost of the item used in
the repair or cleaning of the unit.

(3) If a repair to be done by the landlord or the landlord’s
employee cannot reasonably be completed within 21 calendar days
after the tenant has vacated the premises, or if the documents from
a person or entity providing services, materials, or supplies are not
in the landlord’s possession within 21 calendar days after the tenant
has vacated the premises, the landlord may deduct the amount of
a good faith estimate of the charges that will be incurred and
provide that estimate with the itemized statement. If the reason for
the estimate is because the documents from a person or entity
providing services, materials, or supplies are not in the landlord’s
possession, the itemized statement shall include the name, address,
and telephone number of the person or entity. Within 14 calendar
days of completing the repair or receiving the documentation, the
landlord shall complete the requirements in paragraphs (1) and (2)
in the manner specified.

(4) The landlord need not comply with paragraph (2) or (3) if
either of the following applies:

(A) The deductions for repairs and cleaning together do not
exceed one hundred twenty-five dollars ($125).

(B) The tenant waived the rights specified in paragraphs (2) and
(3). The waiver shall only be effective if it is signed by the tenant
at the same time or after a notice to terminate a tenancy under
Section 1946 or 1946.1 has been given, a notice under Section
1161 of the Code of Civil Procedure has been given, or no earlier
than 60 calendar days prior to the expiration of a fixed-term lease.
The waiver shall substantially include the text of paragraph (2).

(5) Notwithstanding paragraph (4), the landlord shall comply
with paragraphs (2) and (3) when a tenant makes a request for
documentation within 14 calendar days after receiving the itemized
statement specified in paragraph (1). The landlord shall comply
within 14 calendar days after receiving the request from the tenant.

(6) Any mailings to the tenant pursuant to this subdivision shall
be sent to the address provided by the tenant. If the tenant does
not provide an address, mailings pursuant to this subdivision shall
be sent to the unit that has been vacated.

(h) Upon termination of the landlord’s interest in the premises,
whether by sale, assignment, death, appointment of receiver, or
otherwise, the landlord or the landlord’s agent shall, within a
reasonable time, do one of the following acts, either of which shall
relieve the landlord of further liability with respect to the security
held:

(1) Transfer the portion of the security remaining after any
lawful deductions made under subdivision (e) to the landlord’s
successor in interest. The landlord shall thereafter notify the tenant
by personal delivery or by first-class mail, postage prepaid, of the
transfer, of any claims made against the security, of the amount
of the security deposited, and of the names of the successors in
interest, their addresses, and their telephone numbers. If the notice
to the tenant is made by personal delivery, the tenant shall
acknowledge receipt of the notice and sign his or her name on the
landlord’s copy of the notice.

(2) Return the portion of the security remaining after any lawful
deductions made under subdivision (e) to the tenant, together with
an accounting as provided in subdivision (g).

(i) Prior to the voluntary transfer of a landlord’s interest in the
premises, the landlord shall deliver to the landlord’s successor in
interest a written statement indicating the following:

(1) The security remaining after any lawful deductions are made.

(2) An itemization of any lawful deductions from any security
received.

(3) His or her election under paragraph (1) or (2) of subdivision
(h).

This subdivision does not affect the validity of title to the real
property transferred in violation of this subdivision.

(j) In the event of noncompliance with subdivision (h), the
landlord’s successors in interest shall be jointly and severally liable
with the landlord for repayment of the security, or that portion
thereof to which the tenant is entitled, when and as provided in
subdivisions (e) and (g). A successor in interest of a landlord may
not require the tenant to post any security to replace that amount
not transferred to the tenant or successors in interest as provided
in subdivision (h), unless and until the successor in interest first
makes restitution of the initial security as provided in paragraph
(2) of subdivision (h) or provides the tenant with an accounting as
provided in subdivision (g).

This subdivision does not preclude a successor in interest from
recovering from the tenant compensatory damages that are in
excess of the security received from the landlord previously paid
by the tenant to the landlord.

Notwithstanding this subdivision, if, upon inquiry and reasonable
investigation, a landlord’s successor in interest has a good faith
belief that the lawfully remaining security deposit is transferred
to him or her or returned to the tenant pursuant to subdivision (h),
he or she is not liable for damages as provided in subdivision (l),
or any security not transferred pursuant to subdivision (h).

(k) Upon receipt of any portion of the security under paragraph
(1) of subdivision (h), the landlord’s successors in interest shall
have all of the rights and obligations of a landlord holding the
security with respect to the security.

(l) (1) The claim or retention by a landlord or the landlord’s
successors in interest of the security or any portion thereof in
violation of this section, or the demand of replacement security in
violation of subdivision (j), shall subject the landlord or the
landlord’s successors in interest to statutory damages of an amount
equal to the amount of the security improperly withheld, in addition
to actual damages.

(2) Notwithstanding paragraph (1), the bad faith claim or
retention by a landlord or the landlord’s successors in interest of
the security or any portion thereof in violation of this section, or
the bad faith demand of replacement security in violation of
subdivision (j), shall subject the landlord or the landlord’s
successors in interest to statutory damages of up to twice the
amount of the security, in addition to actual damages.

(3) The court shall award statutory damages pursuant to this
subdivision whenever the facts warrant that award, regardless of
whether the injured party has specifically requested relief. In any
action under this section, the landlord or the landlord’s successors
in interest shall have the burden of proof as to the reasonableness
of the amounts claimed or the authority pursuant to this section to
demand additional security deposits.

(m) No lease or rental agreement may contain any provision
characterizing any security as “nonrefundable.”

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(n) (1) From the commencement of the tenancy, interest on the
security held by the landlord shall accrue for each complete month
in which the security is held by the landlord at a rate based upon
the average annual interest rate for the last year published by the
Federal Reserve Board on its Internet Web site for a six-month
certificate of deposit

(2) Interest on the security shall be paid to the tenant at the time
when the notice of initial inspection is required to be provided
pursuant to subdivision (f) or when the itemized statement is
required to be provided pursuant to subdivision (g), whichever is
earlier.

(3) Interest on the security held by the landlord shall be paid to
the tenant separately from the payment of the underlying security
and may not be withheld.

(4) This subdivision shall not apply in any city, county, or city
and county that by charter, ordinance, or regulation requires the
payment to tenants of interest on security, nor does it preempt a
local ordinance that requires the payment of security deposit
interest.

(5) A tenant who is entitled to interest under this section but
who does not receive the interest payment by the time required
pursuant to paragraph (2) shall be entitled to statutory damages in
the amount of the interest withheld in addition to actual damages
or, in the case of bad faith withholding of interest, statutory
damages in the amount of twice the interest withheld in addition
to actual damages.

(6) A landlord who is subject to this subdivision shall notify all
tenants regarding each tenant’s right to receive interest on his or
her security deposit. Notification shall be accomplished by any of
the following:

(A) Posting a notice at a conspicuous location within the
residential premises.

(B) Providing a written notice to the tenant at the time of
entering into a rental or lease agreement.

(C) Sending by first-class mail a written notice to the tenant.

(o) (1) A security deposit held by the landlord shall be deposited
in an account established and maintained solely for this purpose
on behalf of the tenant in a bank, credit union, or other financial
institution that is insured by an agency of the federal government.
This account may include security deposits from multiple tenants.
However, moneys from a security deposit shall not be commingled
with the personal funds of the landlord. This account shall not be
used except as authorized pursuant to this section.

(2) The landlord shall within 20 days of receiving the security
deposit provide written notification to the tenant with the name
and address, whether physical or electronic, of the financial
institution where the account was established.

(3) Failure by a landlord to deposit the funds in a federally
insured financial institution within 20 days of receiving the funds,
or failure to disclose the location of the security deposit account
within 20 days of a written request by a tenant, unless the location
was disclosed as part of a written lease agreement, shall create a
rebuttable presumption in any action under subdivision (l) that the
challenged claim, retention, or demand was undertaken in bad
faith.

(p)

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begin insert (n) end insert  Any action under this section may be maintained in small
claims court if the damages claimed, whether actual or statutory
or both, are within the jurisdictional amount allowed by Section
116.220 or 116.221 of the Code of Civil Procedure.

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(q)

end delete

begin insert (o) end insert  Proof of the existence of and the amount of a security deposit
may be established by any credible evidence, including, but not
limited to, a canceled check, a receipt, a lease indicating the
requirement of a deposit as well as the amount, prior consistent
statements or actions of the landlord or tenant, or a statement under
penalty of perjury that satisfies the credibility requirements set
forth in Section 780 of the Evidence Code.

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(r)

end delete

begin insert (p) end insert  The amendments to this section made during the 1985
portion of the 1985-86 Regular Session of the Legislature that are
set forth in subdivision (e) are declaratory of existing law.

begin delete

(s)

end delete

begin insert (q) end insert  The amendments to this section made during the 2003
portion of the 2003-04 Regular Session of the Legislature that are
set forth in paragraph (1) of subdivision (f) are declaratory of
existing law.