Renting out your property? The Golden Gate City is known for having some of best apartments in San Francisco, but landlords must know their tenants’ rights in order to comply with the law.
Learn about tenants’ security deposit rights to avoid problems in the future.
What counts as a security deposit?
Before moving in, landlords and rental agencies San Francisco typically ask the tenant for a deposit. The security deposit is an initial fee covered under Section 1950.5 of the Civil Code.
There are several kinds of deposits, including:
- Key deposit
- Pet deposit
- Damage deposit
- Move-in fee
- Cleaning fee
- Last month's rent
Security deposits in San Francisco City are governed by state law, and not the Rent Board. Working with San Francisco apartment rental agencies will help you navigate the intricacies of state laws.
Returning your tenant’s security deposit
The law mandates landlords to refund tenants’ deposits within 21 days of the latter vacating the rental.
If for any reason the tenant feels that the refund they received isn’t the right amount, they can go to Small Claims Court to recover the correct amount, or pay for a mediation or arbitration service in order to reach an agreement with you. They may also get in touch with the District Attorney's Consumer Fraud Unit with regards the matter.
You may be liable for penalties up to double the amount of the security deposit, as well as damages owing to bad faith retention of the security deposit.
If you decide to sell during the course of their tenancy, you may transfer the security deposit to the new property owner or simply return the security deposit to the tenant.
It will be up to the tenant to make sure that their current lease accurately reflects the amount held as security deposit before property ownership changes legally.
The maximum limit for security deposits in California
As per Section 1950.5 of the California Civil Code, the landlord may collect:
- The equivalent of two months’ rent as security deposit for unfurnished rentals
- The equivalent of three months’ rent for furnished rentals
The law doesn’t specifically allow landlords to increase the amount of the security deposit for their rental over the years, although some believe that the security deposit can be increased to reflect two months of the current rental rates with proper notice.
In SF, the Rent Board doesn’t handle these kinds of disputes, is it is a matter of state law.
In response, the tenant may file an unlawful rent increase petition with the Rent Board if the property is covered under rent control. Moreover, if the tenant fails to pay this increase, they can’t be evicted on grounds of nonpayment, since their security deposit isn’t considered rent.
How to store your tenants’ deposit money
In SF, landlords take responsibility for storing the security deposit throughout tenancy. However, there are no set guidelines or laws for doing so. That means that you’re not required to store the security deposit in a separate bank account.
However, it is generally advisable to separate your personal savings from rental income by keeping the deposit in a different bank account, in addition to keeping accurate records of the security deposits you’ve received.
The law on non-refundable deposits
Under California law, all security deposits in California are refundable. Failing to return your tenant’s security deposit can result in a case in a Small Claims Court and Superior Court. Although tenant don’t require a lawyer in Small Claims Court, pursuing case in Superior Court will require legal representation.
Paying interest on security deposits
SF tenants, with the exception of government-subsidized renters, expect their landlords to pay them interest each year on their security deposit after September 1, 1983. As landlord, you must pay your tenants interest at least once a year or use it as credit towards their monthly rent.
Click here for security deposit interest rates in SF from 1983 onwards.
If you fail to pay interest annually, tenants may withhold the amount from their monthly rent or take you to Small Claims Court.
SF landlords aren’t required to pay interest to tenants who have been in the property for less than a year.
Knowing your tenants’ rights will help you become a more effective landlord. For questions on renting out property in SF, let Ray Amouzandeh assist you. Call him at 415.494.7009 or send an email to SFHomez(at)gmail(dotted)com for more information.