In our last post, we began talking about what a security deposit is, what it can be used for, and maximum amounts that can be taken from tenants as security. You may be wondering what happens to the security deposit during a tenancy and after a tenant moves out of a rental unit. Here is a quick overview of responsibilities landlords have toward security deposits during and after a tenancy is terminated with a tenant.
Can a Landlord Demand Security Deposit Increases During a Tenancy?
A landlord can demand additional increases of a security deposit from a tenant if the lease terms permit an increase. Generally, the landlord must give you advance written notice per the terms of the lease that the amount of security is going to be increased.
Even if a landlord is entitled to increase a security deposit, a landlord is still subject to the maximum amounts specified in California Civil Code §1950.5(c). For unfurnished rental units, a landlord can only collect two months worth of rent, and for furnished rental units, three months rent can be held as security.
Is a Tenant Entitled to Interest on a Security Deposit?
Generally, a landlord is not required to put a tenant’s security deposit in an interest-bearing account or pay the tenant interest earned on a tenant’s security since there is no state law requiring a landlord to do so. However, in many areas subject to rent control, local ordinances do require a landlord to pay interest earned on deposits to tenants directly or in the form of rent credit.
Even if there is no local ordinance, a landlord could still be responsible for interest payments on a tenant’s deposit if the lease expressly requires it.
What Happens When the Tenant Moves Out?
One of the most common landlord-tenant disputes courts hear are disputes over the refund of a security deposit after a tenant has moved out of a rental unit. California law specifies what a landlord must do with security deposits when a tenant leaves a rental unit.
Landlord Must Provide Tenant Written Notice of Tenant’s Right to Initial Inspection
The purpose of having the landlord conduct an initial inspection is to allow the tenant an opportunity to fix problems in a manner consistent with the parties’ lease agreement to avoid deductions of his or her security deposit. [(CA Civil Code § 1950.5(f)(1),(3)].
Within a reasonable time, a landlord is required to provide a tenant with written notification of his or her right to have an initial inspection of the rental unit following notification of either party terminating the tenancy or before a lease is set to expire. [(CA Civil Code § 1950.5(f)(1)].
A landlord, however, does not need to provide notice of inspection when a tenancy or lease is being terminated on a three-day notice for something such as non-payment of rent, breach of a lease covenant, or commission of waste or nuisance. [(CA Civil Code § 1950.5(f)(1)].
No Inspection Required if Tenant Does Not Request One
Once the landlord gives notice to the tenant about the right to have an initial inspection, it is up to the tenant to request one. [(CA Civil Code § 1950.5(f)(1)]. A landlord is not obligated to conduct an inspection if tenant chooses not to request it. [(CA Civil Code § 1950.5(f)(1)].
Inspection Must Occur No Earlier Than Two Weeks Before Termination of Lease or Tenancy
If a tenant does elect to have an initial inspection, it must be conducted no earlier than two weeks before termination of the lease or tenancy. [(CA Civil Code § 1950.5(f)(1)].
Landlord Should Be Accommodating when Scheduling an Inspection
When scheduling an initial inspection, the landlord should try to be as accommodating as possible to make sure both parties can be present to walk through the rental unit. This initial inspection will be a prime opportunity to identify potential repair and cleaning issues. With both parties present during the walk-through, any potential problems can be addressed and taken care of before the parties go their separate ways.
If the parties cannot agree on a mutual time to conduct the inspection and the tenant still wishes to have an inspection, the landlord must give the tenant at least 48 hours written notice of when the inspection is going to be performed. [(CA Civil Code § 1950.5(f)(1)]. If the tenant does not show up to the inspection appointment after the landlord’s notice and does not withdraw his or her request for inspection, a landlord still must conduct the inspection without the tenant being present. [(CA Civil Code § 1950.5(f)(1)].
Requirements for Landlord Accounting and Refund of Security Deposit
As mentioned in the last post, under California Civil Code § 1950.5(b), a security deposit can be used by a landlord for a number of purposes, including (1) unpaid rent, (2) repairs for damages to a rental unit outside of normal wear and tear, (3) restoring a rental unit to the level of cleanliness it was in when the tenant first received the unit, and (4) restoring personal property that was included with a rental unit when the lease specifies a deposit can be used for that purpose. [CA Civil Code § 1950.5(b)].
However, if a landlord is anticipating using a tenant’s security deposit, the landlord must comply with certain accounting procedures to inform a tenant how his or her security deposit will be applied to repairs and return any unused deposit to the tenant.
21-Day Deadline to Return Deposit or Provide Itemized Statement to Tenant
Once a tenant has moved out of a rental unit, landlords have 21 days to either give the tenant a refund of the entire security deposit or provide an itemized statement of charges against a tenant’s security deposit. [CA Civil Code § 1950.5(g)(1)]. All charges must be reasonable.
In addition to the itemized statement of deductions, landlords must also provide reasonable documentation of the repairs made, explaining the work a landlord has performed, including time spent, hourly rate charged, and costs for materials if amounts spent on materials are being deducted from the security deposit. [CA Civil Code §§ 1950.5(g)(2)(A),(2)(C)]. If a landlord uses another business to conduct the repairs, the tenant must also be provided with copies of the business’s invoices, bills, or receipts showing the cost of work performed and hours worked. The landlord must also provide the name, address, and phone number of the business performing the work. [CA Civil Code §§ 1950.5(g)(2)(B)].
If work to a rental unit cannot be completed within 21 days or if another service provider or business cannot provide a final invoice of repairs to be made, a landlord is allowed to provide a tenant with a good faith estimate of the repairs to be made and deduct the amount of the good faith estimate from the security deposit. [CA Civil Code § 1950.5(g)(3)]. Once the repairs are completed or when the final invoice for the repairs is available, landlords have 14 days to provide tenants with a final statement of charges and refund any excess security deposit to the tenant. [CA Civil Code § 1950.5(g)(3)].
Some Exceptions to Documentation
Landlords may be excused from providing the documentation of costs for repairs listed above if the repairs are under $125 or if the tenant signs a waiver stating documentation is not necessary. [CA Civil Code §§ 1950.5(g)(4)(A),(B)]. However, even if repairs are under $125, a landlord still must provide documentation of repairs made if a tenant requests them. A landlord has 14 days to provide the tenant with documentation of the repairs. [CA Civil Code § 1950.5(g)(5)].
Consequences for Failure to Comply with the Above Accounting Procedures
Failure to comply with the above accounting procedures could prevent a landlord from having the right to deduct any portion of the tenant’s security deposit and force the landlord to return the entire deposit to the tenant. [CA Civil Code § 1950.5(e)]. (Granberry v. Islay Investments (1995) 9 C4th 738, 745). Unlawfully withholding a tenant’s security deposit could subject a landlord to a civil or small claims lawsuit entitling a tenant to collect actual damages up to twice the amount of the security deposit if the court finds the landlord withheld the security deposit in bad faith. [CA Civil Code § 1950.5(l)].
Conclusion
It’s very important that landlords and tenants know the law regarding security deposits. Knowing what security deposits can be used for and proper handling can prevent time-consuming, costly disputes. Stay tuned for more upcoming landlord-tenant posts.
