Renting property comes with its share of joys – a landlord gets aid paying his or her mortgage and often a little extra profit and a tenant gets to live in a home free from the worry of mortgages and property taxes. But, renting property also has its share of anxieties – What if my property gets damaged? What if my landlord tries to rip me off when I move? Security deposits are one of the best tools for both landlords and tenants to protect themselves from the not-so-niceties of renting.
What is a Security Deposit?
A security deposit is any money that a landlord collects from a tenant, in addition to the rent amount, that is held by the landlord for the purpose of compensating the landlord if a tenant does not pay his or her rent, damages to the premises, cleaning the premises or remedying other defaults in the lease. The amount of a security deposit should be clearly documented in a written lease agreement or in the case of an oral lease, a rent ledger, to avoid dispute at the termination of the tenancy.
How Much Security Can a Landlord Collect from a Tenant?
The California Civil Code provides caps for the amount of security a landlord can collect. A landlord of an unfurnished residential property may not collect an amount that exceeds two times the monthly rent amount. If the unit is furnished, a landlord cannot collect an amount that exceeds three times the monthly rent amount. Civil Code §1950.5(c)
All sums collected are considered security except for applicant screening fees and of course, the first month’s rent. Civil Code §1947.3. Applicant screening fees are most often used for credit checks. The fees need to comply with Civil Code §1950.6 to the extent that the fee must be limited to the actual cost of tenant screening not to exceed $30.00 as adjusted annually by Consumer Price Index increases.
All residential security deposits must be refundable except to the extent that Civil Code §1950.5 allows the landlord to retain a tenant’s security deposit upon termination of tenancy. Allowable deductions from a security deposit will be explained in a future blog entry.
Commercial tenancies do not share the same restrictions as residential. Security deposits in commercial tenancies are completely up for negotiation based upon industry standards.
Rent Control Ordinances
Los Angeles County is incredibly diverse spanning multiple cities. It is imperative for both landlords and tenants to look into a premise’s city ordinances to determine whether it is under rent control. Beverly Hills, Santa Monica and West Hollywood are some examples of cities with their own rent control ordinances.
Rent control laws can change up the game when it comes to collecting security deposits. For example, landlords subject to the Los Angeles Rent Stabilization Ordinance must pay interest to tenants on all security deposits held for at least one year. The landlord can either pay the actual amount of interest earned on the security deposit or at the interest rate determined by the Rent Adjustment Commission.
Additional Considerations
Landlords should be weary of labeling any portion of a security deposit as “last month’s rent.” Labeling a security deposit as “last month’s rent” may entitle a tenant to forego paying the final month’s rent by deducting that rent from his or her security deposit thereby reducing the amount of security a landlord has left to use for covering damages to the property. This label may also limit the amount of rent that can be collected in the last month of the tenancy should rent increases have taken place prior to the last month of the tenancy.
Security deposits provide both landlords and tenants with a sense of security and breathing room. It is important for both landlords and tenants to understand how much can be collected, why it can be collected and any additional restrictions that the premise’s city puts in place. If landlords and tenants both do their homework, a security deposit can quell a bit of the rental anxiety so they can focus on the joys of renting.
