Security Deposits

February 20, 2024

This year's security deposit interest rate is 5.2%

This is for March 1, 2024 through February 28, 2025

The security deposit interest rate for March 1, 2023 through February 29, 2024 is 2.3%

“SF Apartment” by Timothy Buck, CC BY

Security Deposit laws are changing on July 1, 2024.

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Changes to Security Deposit laws

AB 12 amends California Civil Code Section 1950.5 to limit the maximum security deposit for a dwelling unit to one month's rent, regardless of whether the unit is furnished or unfurnished.

The changes apply to security deposits collected on or after July 1, 2024.  

Learn more about changes to Security Deposit laws.

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Overview

Most security deposit issues are governed by state law. The Rent Board does not handle disputes under state law. Under Section 1950.5 of the California Civil Code, a landlord may generally collect:

  • Up to two months rent for deposits on unfurnished apartments
  • Up to three months rent for deposits on furnished apartments

This applies no matter what the security deposit is called. It may be called: last month's rent, a move-in fee, a cleaning fee, a pet deposit, a key deposit, etc. and it is still considered a security deposit.

There is no such thing as a "non-refundable" security deposit.

State law requires the landlord to refund deposits within 21 days of the tenant vacating the unit.

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Deductions

State law allows the landlord to make deductions from a security deposit for reasons such as:

  • Unpaid rent or bills
  • “Reasonable” cleaning
  • Loss of personal property
  • Damage to the unit that exceeds normal wear and tear
  • Damage to the unit caused by guests that exceed normal wear and tear

Normal wear and tear is not clearly defined under state law. The Rent Board cannot help you determine what is or is not normal wear and tear.

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.

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Inspections

State law requires landlords to notify tenants that they have the right to an inspection of the unit within two weeks before they vacate. This way a tenant can learn 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.

Landlords must provide a 48-hour notice of the time and date of the inspection. A tenant can waive the 48-hour notice in writing.

The landlord must leave the tenant with an itemized statement at the time of inspection. The itemized statement should specify repairs or cleaning that could result in a deduction from the security deposit.

If the tenant is not present then the statement should be left inside the premises.

The statement must also contain specific statutory language reminding the tenant of their rights.  The law also allows the tenant to fix any identified deficiencies.

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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 the maximum security deposit amount with proper notice.

Since this is a matter of state law, the Rent Board does not handle such disputes.

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Incorrect or unreturned security deposits

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
  • Consult an attorney

If you choose to go to Small Claims Court, be aware that your claim cannot exceed $10,000.00 and that California law prohibits attorneys from representing another person at a Small Claims Court hearing.

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Interest on security deposits

Chapter 49 of the San Francisco Administrative Code requires landlords to pay interest annually on deposits 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.

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.

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This year's security deposit interest rate

The rate of interest owed on deposits for the period March 1, 2024 through February 28, 2025 is 5.2%. The rate of interest owed on deposits for the period March 1, 2023 through February 29, 2024 is 2.3%. The new rate is published annually by the Rent Board in early January for the one-year period beginning March 1st.

The Rent Board calculates the interest rate according to the annual average of the 90-Day AA Financial Commercial Paper Interest Rate (rounded to the nearest tenth) for the immediately preceding calendar year as published by the Federal Reserve.

Here's a list of interest rates for security deposits since September 1983. This list is also available at our office.

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Calculating interest

Generally, the tenant is owed simple interest at the rate in effect when the security deposit interest payment is due.

  • For example, if the deposit held is $1,000.00 and the applicable interest rate is 5.2%, then the interest payment due is $52.00.

If interest is owed for multiple years, the interest may not be compounded.

  • For example, if the deposit held is $2,000.00 and interest for two years is to be paid on the annual due date of November 1, 2024, the landlord would owe the tenant 2.3% or $46.00 for 2023, plus 5.2% or $104.00 for 2024, for a total of $150.00.

Other than payment of the past interest owed, San Francisco does not list other penalties for the late payment of interest.

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.

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Paying security deposit interest

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. If a unit is covered by the Rent Ordinance and subject to the annual Rent Board fee, the landlord is allowed 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, a landlord may retain a portion of the unpaid accrued interest where the amount of the security deposit alone does not cover allowed deductions.

Generally, disputes concerning security deposits or security deposit interest issues are decided in Small Claims Court. The Rent Board does not have jurisdiction over these disputes. Rent Board staff cannot give legal advice concerning these issues. Please consult an attorney or appropriate agency for specific advice.

 

Tags: Topic 101

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