BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 603|
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THIRD READING
Bill No: SB 603
Author: Leno (D)
Amended: 4/29/13
Vote: 21
SENATE JUDICIARY COMMITTEE : 4-1, 5/7/13
AYES: Evans, Corbett, Leno, Monning
NOES: Anderson
NO VOTE RECORDED: Walters, Jackson
SUBJECT : Landlord and tenant: security deposit
SOURCE : California Rural Legal Assistance
Tenants Together
Western Center on Law and Poverty
DIGEST : This bill mandates a statutory damage equal to the
amount withheld from a deposit when a landlord improperly
withholds any portion of a deposit, regardless of a showing of
bad faith. This bill also requires landlords to (1) keep
deposits in accounts in institutions that are protected by
federal deposit insurance, (2) notify a tenant of the location
of the deposit (failure to do so creates a rebuttable
presumption that the landlord acted in bad faith), (3) to pay
the accrued interest from security deposits to tenants at the
end of tenancy (failure to pay interest subjects a landlord to
actual damages plus interest if improperly withheld. Where bad
faith is shown, an improper withholding of interest entitles a
plaintiff to actual damages plus twice the amount of the
interest improperly withheld.) This bill does not apply to any
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city, county, or city and county that requires the payment to
tenants of security deposit interest.
ANALYSIS :
Existing law:
1. Regulates the landlord-tenant relationship, including the
return of any security deposit provided by the tenant.
2. Permits the landlord to only claim amounts from that deposit
which are reasonably necessary for specified purposes. Those
purposes include compensating for a tenant's default in
payment of rent, repair of damages to the premises (exclusive
of ordinary wear and tear), and cleaning the premises, as
specified.
3. Provides that no later than 21 calendar days after the tenant
has vacated the premises, as specified, the landlord shall
furnish the tenant with 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.
4. Provides that the bad faith withholding of a security deposit
subjects the landlord to statutory damages of up to twice the
amount of the security deposit, in addition to actual
damages. In any action for recovery of the security, the
landlord has the burden of proof as to the reasonableness of
the amounts claimed.
This bill:
1. Mandates that a court award statutory damages of not less
than the amount of the security deposit which was withheld,
if a tenant shows that a landlord improperly withheld all or
a portion of a security deposit.
2. Requires landlords to deposit security deposits in an account
established and maintained solely for the purpose of holding
security deposits. The account must be at an institution
that is insured by the federal government.
3. Requires landlords to notify tenants, in writing, of the name
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and address of the financial institution where the account is
established within 20 days of receiving a security deposit,
and provides that failure to deposit security deposits in a
federally insured account or notify the tenants of the
location of that account within 20 days creates a rebuttable
presumption of bad faith.
4. Requires landlords to pay tenants interest on the security
deposit at the termination of tenancy, in a payment separate
from the underlying security deposit. Interest would be
calculated based on the Federal Reserve six month certificate
of deposit rate of the preceding calendar year. This bill
additionally requires that a tenant receives his/her interest
payment:
at the time when the notice of initial inspection is
required to be provided to the tenant, as specified; or
when the itemized statement indicating the disposition
of the security deposit is due, whichever is earlier.
5. Provides that if a tenant has not received a security deposit
interest payment within the timeframe specified above, the
tenant shall be entitled to statutory damages in the amount
of actual damages plus the amount of interest withheld, and
further provides that if bad faith withholding is shown, the
tenant is entitled to actual interest plus twice the amount
of the interest withheld.
6. Requires landlords to notify tenants of each tenant's right
to annually receive interest on his/her security deposit.
Authorizes notice to tenants in the following methods:
posting a notice at a conspicuous location within the
residential premises;
providing written notice at the time of entering into a
lease or rental agreement; or
sending a written notice to the tenant by first class
mail.
7. Exempts cities and/or counties that require interest payments
to tenants based on their security deposits from the
provisions of this bill, and makes technical and clarifying
changes.
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Background
California law regulates various aspects of the relationship
between residential landlords and tenants, including the
collection and return of the security deposit. Those deposits
cannot be greater than two months' rent for unfurnished
properties, or three months' rent for furnished residential
properties. Landlords are only allowed to claim amounts from
the security that are reasonably necessary for specified
purposes (such as repairing damages exclusive of ordinary wear
and tear), and must return any remaining portion of the deposit
within 21 days after the tenant has vacated the premises.
AB 2330 (Midgen, Chapter 1061, Statutes of 2002) further
protects tenant's rights by requiring a landlord to notify the
tenant in writing of the tenant's option to request an initial
inspection upon notice of the termination of a lease and the
tenant's right to be present at the inspection. That bill also
provided that a tenant must have the opportunity to remedy
identified deficiencies, as specified, during the period
following the initial inspection until the end of the tenancy.
That bill changed the amount of statutory damages for bad faith
violations from $600 to twice the amount of the security.
Despite laws outlining how security deposits should be managed,
the Department of Consumer Affairs notes that "[t]he most common
disagreement between landlords and tenants is over the refund of
the tenant's security deposit after the tenant has moved out of
the rental unit."
Prior legislation
AB 2330 (Migden, Chapter 1061, Statutes of 2002) among other
provisions, redefined security, required specified landlords to
notify tenants of their option to request an initial inspection
and the tenant's right to be present at the inspection. The
bill changed the amount of statutory damages for certain
violations from $600 to twice the amount of the security.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 5/9/13)
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California Rural Legal Assistance (co-source)
Tenants Together (co-source)
Western Center on Law and Poverty (co-source)
Asian Law Caucus
Bet Tzedek Legal Services
California Alliance for Retired Americans
California Reinvestment Coalition
Causa Justa :: Just Cause
Coalition for Economic Survival
Courage Campaign
Eviction Defense Collaborative
Housing and Economic Rights Advocates
Housing Rights Committee of San Francisco
Isla Vista Tenants Union
Law Foundation of Silicon Valley
National Housing Law Project
Santa Barbara Rental Housing Roundtable
Santa Monicans for Renters' Rights
Tenderloin Housing Clinic
Unite Here
OPPOSITION : (Verified 5/9/13)
Apartment Association, California Southern Cities
Apartment Association Greater Los Angeles
Apartment Association Orange County
California Apartment Association
California Association of Realtors
East Bay Rental Housing Association
Leading Age California
Lighthouse Commercial Property Management
NorCal Rental Property Association
Ramirez Residential Properties, LLC
San Diego County Apartment Association
Santa Barbara Rental Property Association
ARGUMENTS IN SUPPORT : According to the author's office,
security deposits continue to be perhaps the single most
recurring source of conflict between landlords and tenants.
Many tenants are simply resigned to getting little or nothing
back on their deposits, which are only supposed to be used for
damage to the unit, rent left owing, or cleaning to bring the
unit up to the level of cleanliness when the unit was rented.
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The law allows deduction only for "damage" beyond ordinary wear
and tear.
Another problem has been exacerbated by the foreclosure crisis.
Landlords are not required to hold deposits in any particular
form. Tenants are unable to recover deposits from bankrupt
landlords. As a corollary, even though the deposits are the
tenants' property, no interest is required to be paid. It is
conservatively estimated that landlords hold $5 billion in
tenant deposits statewide. The income from the deposits is kept
by the landlords.
ARGUMENTS IN OPPOSITION : The California Apartment
Association, argues that "by requiring judges to award mandatory
penalties for any de minimis error, SB 603 would create a very
strong incentive for every tenant to sue property owners."
They further state, "Under SB 603, a property owner who simply
forgets or does not know that they need to ? deposit the
tenant's security deposit in a federally insured financial
institution, or does not disclose to the tenant timely or
correctly the location of the deposit is considered to have done
so in "bad faith." As a result, he or she is in violation of
the law and may be subject to TWICE the amount of the security
deposit, plus actual damages."
AL:d 5/9/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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