BILL ANALYSIS
AB 2330
Page 1
Date of Hearing: May 14, 2002
ASSEMBLY COMMITTEE ON JUDICIARY
Ellen M. Corbett, Chair
AB 2330 (Migden) - As Amended: May 1, 2002
As Proposed to Be Amended
SUBJECT : LANDLORD-TENANT LAW
KEY ISSUE : SHOULD LANDLORD-TENANT LAW BE AMENDED TO PROVIDE,
AMONG OTHER THINGS, THAT: (1) INTEREST ON A SECURITY DEPOSIT BE
PAID TO THE TENANT; (2) THE TENANT BE GIVEN THE OPTION TO
REQUEST AN INSPECTION PRIOR TO MOVE-OUT SO THAT THE TENANT HAS
AN OPPORTUNITY TO MAKE REPAIRS OR CLEAN IN ORDER TO AVOID
DEDUCTIONS FROM HIS OR HER SECURITY DEPOSIT; AND (3) A
DEFINITION OF "WEAR AND TEAR" BE INCLUDED IN STATUTE IN ORDER TO
AVOID MISUNDERSTANDINGS AS TO WHAT MAY BE DEDUCTED FROM A
SECURITY DEPOSIT?
SYNOPSIS
This bill, sponsored by the California Association of Community
Organizations for Reform Now (ACORN), is being heard today in
Committee as proposed to be amended. As initially drafted, the
bill made a number of substantial changes to existing law
regarding retaliatory evictions. Based on concerns that this
section of the bill needed more work and vetting, the author and
her sponsor have agreed to delete section one of the bill. The
remainder of the bill seeks to provide tenants additional rights
and protections. Among other things, the bill requires that
interest on a tenant's security deposit be paid to the tenant at
a specified rate and provides that the interest is to be paid
upon termination of the tenancy or upon the first month of every
fifth calendar year, whichever comes first. The bill also
defines "ordinary wear and tear," for which a security deposit
may not be used under existing law and requires a landlord, upon
the request of the tenant, to make an inspection of the unit
before the tenant moves out so that the tenant has an
opportunity to make repairs or clean in order to avoid
deductions from the security deposit.
Supporters argue that the measure is necessary because many
tenants have a difficult time retrieving their security deposit
after moving out. In addition, they argue that the bill's
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provision allowing for an inspection prior to the tenant moving
out gives tenants a better idea of how much security deposit
they will receive back and what they need to fix or clean in
order to get the whole deposit back. Supporters also argue the
bill's statutory definition of "wear and tear" is important to
avoid misunderstanding as to what is considered "damage" (a
permissible use of the security deposit) as opposed to "wear and
tear" (an impermissible use). They also argue that allowing
tenants interest on their security deposits puts the money
earned on the deposit where it rightfully belongs - in the hands
of the tenant.
Opponents, on the other hand, argue that the bill adds more
costs and regulations to an already overly burdened industry.
They argue that many cities already require that interest be
paid on security deposits and, as a result, no further
authorization or mandate is warranted. They argue that the cost
to an owner to calculate and return to a tenant each year the
interest on security deposits would far outweigh the actual
interest itself. Opponents also express concern at the bill's
inclusion of a statutory definition of "wear and tear" and argue
that many landlords will currently do a walk through of a unit
at the request of a tenant, although they may want to wait until
all the tenant's belongings are moved out so any damage to the
walls and carpets is evident.
SUMMARY : Seeks to provide tenants additional rights and
protections. Specifically, this bill :
1)Provides that a landlord must pay to the tenant interest on
any security at the rate of one percent less than the Federal
Reserve Discount Rate as of December 31st of the preceding
calendar year. The interest is to be paid upon termination of
the tenancy or upon the first month of every fifth calendar
year, whichever comes first and, in the latter case, a tenant
may deduct interest owed from the rent. The bill also
expresses the intent of the Legislature stating that the one
percent difference of interest owed and the Federal Reserve
Discount Rate is to be retained by the landlord to defray any
administrative costs.
2)Requires that any landlord who does not pay interest pursuant
to the above shall be liable for twice the amount of the
accrued interest. The bill also provides that this section
shall not apply in any city, county or city and county that
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already requires that tenants be paid interest on their
security.
3)Defines "ordinary wear and tear," for which a security deposit
may not be used under existing law, as the deterioration or
depreciation in value of a premise that is the result of
reasonable and ordinary use by the tenant or a guest or
licensee of the tenant and deterioration that occurs through
every day usage, rather than unusual damage caused by tenant
abuse or carelessness.
4)Provides that ordinary wear and tear includes, but is not
limited to, deterioration that is rectified by routine
painting, carpet replacement, or other routine repairs and
requires that a landlord bear the burden of proof if he or she
claims that a tenant is liable for damages beyond ordinary
wear and tear.
5)Provides that, within a reasonable time after the landlord's
receipt of the tenant's notification of intention to terminate
the tenancy, the landlord must notify the tenant in writing of
his or her option to request an initial inspection and of his
or her right to be present at the inspection.
6)Provides that, at a reasonable time after the notification of
intention to terminate the tenancy, the landlord, or an agent
of the landlord, must, upon the request of the tenant, make an
initial inspection of the premises prior to any final
inspection the landlord makes after the tenant has vacated the
premises and provides that the purpose of this initial
inspection shall be to allow the tenant an opportunity to make
repairs or clean in order to avoid deductions from
the security.
7)Provides that if a tenant chooses not to request an initial
inspection, the duties of the landlord as to an initial
inspection are discharged.
8)Requires that, based on the inspection, the landlord must give
the tenant an itemized statement specifying repairs or
cleaning that are proposed to be the basis of any deductions
from the security deposit and requires the landlord to notify
the tenant of specified rights, including that a landlord may
make deductions from the security deposit for certain items
and that a tenant is entitled to interest on his or her
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security deposit.
9)Provides that a tenant shall have the opportunity during the
period following the initial inspection until termination of
the tenancy to make repairs or clean in order to avoid
deductions from the security.
10)Provides that nothing in the bill relating to this initial
inspection shall prevent a landlord from using the security
for deductions itemized in the statement that were not cured
by the tenant.
11)Provides that nothing in the bill relating to this initial
inspection shall prevent a landlord from using the security
for any allowable purpose that occurs between completion of
the initial inspection and termination of the tenancy.
12)Amends the definition of security deposit to include any
payment, fee, deposit, or charge, except an application
screening fee, that is imposed at the beginning of the tenancy
to be used to reimburse the landlord for costs associated with
processing a new tenant.
13)Amends the provision in existing law which states that a
security deposit may be used for the cleaning of the premises
upon termination of the tenancy. The bill adds that the
cleaning must be necessary to return the unit to the same
level of cleanliness it was in at the inception of the
tenancy.
14)Increases the damages that may be awarded for a bad faith
claim or retention by a landlord of the security deposit from
$600 to twice the amount of the security.
EXISTING LAW :
1)Provides that "security" means any payment, fee, deposit, or
charge, including, but not limited to, an advance payment of
rent, used for any purpose, including, among others:
a) The repair of damages to the premises, exclusive of
ordinary wear and tear, caused by the tenant or his or her
guests or licensees.
b) The cleaning of the premises upon termination of the
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tenancy. (Section 1950.5(b).)
2)Provides that a landlord may not use a security deposit for
ordinary wear and tear and provides additionally that a
landlord may not assert a claim against a tenant or the
tenant's security deposit for ordinary wear and tear.
(Sections 1950.5(b)(2) and 1950.5(e).)
3)Requires that, within three weeks after the tenant has vacated
the premises, the landlord must provide 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 must return any remaining portion of the security
to the tenant. (Section 1950.5(f).)
4)Provides that a landlord may charge an applicant screening fee
of no more than $30 to cover the costs of obtaining
information about the applicant, including, for example, a
consumer credit report. (Section 1950.6.)
5)Provides that the bad faith claim or retention by a landlord
of the security deposit may subject the landlord to damages of
up to $600, in addition to actual damages. (Section
1950.5(k).)
6)Provides that a security deposit is the property of the
tenant. (Sections 1950.5(d)-(f), Action Apartment Association
v. Santa Monica Rent Control Board , (2001) 94 Cal.App. 4th
587, 599, rev. denied, 2002 Cal. LEXIS 1915.)
7)Provides that a landlord may plead a takings claim when a
landlord is required to pay tenants a fixed rate of interest
on security that is greater than the amount of interest the
security accrues in an interest-bearing account at a federally
insured financial institution and a legitimate state interest
is not advanced for the requirement of the fixed rate.
( Action Apartment Association v. Santa Monica Rent Control
Board , supra. .)
8)Provides that a fee imposed at the outset of the tenancy to
reimburse a landlord for expenses incurred for such purposes
as providing application forms, interviewing, and screening
applicants is not a security within the definition provided
under Section 1950.5. ( Kraus v. Trinity Management Services,
Inc. , 23 Cal. 4th 116.)
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FISCAL EFFECT : The bill as currently in print is keyed
non-fiscal.
COMMENTS : This bill is being heard today in Committee as
proposed to be amended. As initially drafted, the bill made a
number of substantial changes to existing law regarding
retaliatory evictions. Based on concerns that this section of
the bill needed more work and vetting, the author and her
sponsor have agreed to delete section one of the bill. In
support of the bill, the author writes:
AB 2330 seeks to redress some of the imbalances in
California's Landlord-Tenant Law and also provides
vulnerable tenants with several new tools by clarifying
the law. ? Many tenants have a very difficult time
retrieving their security deposit after moving out. This
bill specifies parameters for a landlord's handling of a
security deposit and requires that the landlord inspect
the property prior to the move-out date with the tenant
present. This ensures that tenants receive an advance
explanation for any deduction to their deposit.
Often tenants are charged non-refundable tenant
initiation fees, which are not reflective of the true
expenses of processing new tenants. AB 2330 would
prohibit these fees that some landlords impose at the
outset of tenancy.
Interest on security. According to the sponsor, nine states
require that tenants receive interest on their security deposit.
Most of these states require that either the landlord pay the
tenant the interest or permit the tenant to deduct the amount of
interest from his or her rental payment. The rate determination
ranges, varying from 4 percent (Maryland) to the interest rate
paid by the largest commercial bank in the state (Illinois).
According to the sponsor, both New York and New Jersey permit a
landlord to deduct an administrative fee from the interest
earned. The remainder is returned to the tenant.
In addition, the California Apartment Association notes that,
while in California there are currently no state requirements
that rental property owners pay interest on security deposits to
tenants, a number of local jurisdictions require owners to pay
the interest to tenants (Berkeley, East Palo Alto, Hayward, Los
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Angeles, Rohnert Park, Santa Cruz, San Francisco, Santa Monica,
Watsonville, West Hollywood, and Santa Barbara.)
As mentioned above, the Court of Appeal, Second Appellate
District, recently held that a landlord may plead a takings
claim when he or she is required to pay tenants a fixed rate of
interest on security that is greater than the amount of interest
the security accrues in an interest-bearing account at a
federally insured financial institution and a legitimate state
interest is not advanced for the requirement of the fixed rate.
( Action Apartment Association v. Santa Monica Rent Control
Board , supra. .) In Action Apartment Association , the City of
Santa Monica required landlords of residential rental property
to place tenants' security deposits in interest-bearing accounts
at a federally insured financial institution. Landlords were
required to pay tenants three percent interest per year on the
security deposits.
A number of landlords challenged this requirement as a taking of
private property without just compensation, arguing that,
because of market conditions, the financial institutions were
paying less than three percent on the deposits and, as a result,
the landlords were required to pay the difference with their own
funds. The court held that, in this case, the landlords had a
valid takings claim because a legitimate state interest was not
advanced for the requirement of this fixed rate.
This bill, on the other hand, provides that a landlord must pay
to the tenant interest on any security at the rate of one
percent less than the Federal Reserve Discount Rate as of
December 31st of the preceding calendar year. The bill also
provides that the interest is to be paid upon termination of the
tenancy or upon the first month of every fifth calendar year,
whichever comes first. The bill also expresses the intent of
the Legislature stating that the one percent difference of
interest owed and the Federal Reserve Discount Rate is to be
retained by the landlord to defray any administrative costs. As
a result, the situation which occurred in Action Apartment
Association , where the landlords were forced to pay the
difference between the interest required to be paid to the
tenant and the amount that the financial institutions were
paying on the deposits, is arguably unlikely to reoccur here.
ARGUMENTS IN SUPPORT : The sponsor of the measure, California
Association of Community Organizations for Reform Now (ACORN),
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writes "the security deposit reforms that you propose offer
solutions to some of the more critical problems with the
security deposit system. Too many renters do not get the proper
portion of their deposit returned, nor in a timely fashion and
[AB] 2330 helps improve this. All told, AB 2330 is an important
first step towards protecting California's renters."
The Service Employees International Union (SEIU) supports the
measure, stating:
AB 2330 will give tenants a better idea of how much
security deposit they will receive back, and what they
need to fix in order to get the whole deposit back.
Presently, a tenant has to wait three weeks to find
out if she is getting her security back, even if she
was counting on that security for a new apartment. A
tenant's only remedy now is to take the landlord to
small claims court, which can take quite a long time.
With AB 2330 a tenant has a better idea of what money
to count on, and both the landlord and tenant can try
to resolve any disagreements during the walk through
inspection. AB 2330 also defines "ordinary wear and
tear" so there will be less misunderstanding as to
what is considered "damage" (which a landlord can
charge for) as opposed to "wear and tear" (which a
landlord cannot charge for).
In support of the measure, the State Building and Construction
Trades Council of California writes:
As you are well aware, the housing market in
California is critically short of fulfilling the
demonstrated need. Unscrupulous landlords can only
make difficult matters worse. The State Building
Trades Council is honored to join with low-income
housing advocates to support the rights of tenants and
to boost the supply of low-income housing.
California Works Foundation supports the measure, writing:
2330 will reduce conflict between landlords and
tenants over security deposit return by instituting a
system of pre-moveout walkthroughs that will
facilitate a more transparent process and standard for
the return of the deposit.
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2330 allows renters the simple protection of the
American concept of "innocent until proven guilty"
with regard to security deposits. By defining "wear
and tear" more precisely, it helps prevent the unfair
takings of the deposit. Until a tenant damages a
rental unit, the security deposit is their money. By
providing for regular payment of interest on security
deposits to tenants, AB 2330 removes the hidden fees
which landlords extract from renters and directs
security deposit interest where it rightfully belongs,
in the hands of hardworking families who rent their
home.
Senior Action Network supports the measure, stating "Tenants are
unable to fully utilize their security deposit in the housing
market reflecting their stability in their communities and in
California society. ? AB 2330 contains a number of provisions
that will help protect hard working tenants, while at the same
time assuring the full rights of responsible landlords."
In support of the measure, Santa Monicans for Renters' Rights
states:
Your effort to reform the security deposit laws to
ensure that tenants are treated fairly with regard to
the money they advance is absolutely necessary. I
manage a volunteer staffed Tenant Hotline. We get an
average of seven calls a day with tenant problems in
the City of Santa Monica. Almost one call a day has
to do with landlords unfairly retaining tenants'
security deposits after the tenants have vacated.
About 12% of our calls area devoted to explaining the
process for documenting the condition of the unit and
going to Small Claims Court. Many landlords seem
willing to take a shot, knowing that the penalty is
small and infrequently applied.
The Hotel Employees and Restaurant Employees Union Local 483,
AFL-CIO supports the measure, writing "? for generations most of
California's working families have been able to afford a decent
home, in a nice neighborhood, close to work. No longer. Today,
the housing market is wildly out of balance. Housing developers
aren't building enough homes to keep up with the increase in
jobs and people. The deepening housing crisis hurts all of us,
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but it particularly hurts working families. We need to build
more homes so that rents will again be affordable. But in the
meantime, the housing crisis is serious enough that renters need
protections from a few irresponsible landlords. ? we need to
assure that hard working families who follow the rules receive
their security deposits back."
ARGUMENTS IN OPPOSITION : With respect to the bill's provisions
concerning fees to process new tenants, the California Apartment
Association (CAA) which opposes the bill, states:
In 1996, the California Apartment Association
sponsored, and the Governor signed, legislation that
specifically allows owners to charge an "application
screening fee," not to exceed the owner's actual
costs, and in no event can that fee exceed $30.
Owners cannot keep the fee collected from the tenant
if the owner does not run a credit report. (Civil
Code Section 1950.6).
Then in 2000, the California Supreme Court upheld a
property owner's ability to charge fees at the outset
of a tenancy. The court ruled that a fee imposed at
the outset of the tenancy to reimburse the owner for
expenses incurred for such purposes as providing
application forms, listing, interviewing, and similar
purposes is not a security governed by the provisions
of current law. Current security deposit law has
historically applied to the landlord-tenant
relationship and not to pre-tenancy situations where
an owner collects fees from individuals who are not
yet approved as tenants.
AB 2330 expands the definition of security to also
mean "any payment, fee, deposit, or charge that is
imposed at the beginning of the tenancy to be used to
reimburse the landlord for costs associated with
processing a new tenant . . . " This definition
appears to bring under the law the pre-tenancy
process, and it certainly makes refundable all fees an
owner collects to process a new tenant.
AB 2330 co-mingles the applicant process with the new
tenant process. The amendments to the law provided in
AB 2330 prohibit an owner from collecting any fees
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whatsoever to process a new tenant. However, it's
unclear whether these amendments would allow an owner
to collect fees from all applicants in order to cover
the owner's costs to review applicants' credit history
and whether it requires that the owner return moneys
to those applicants who are later selected as tenants.
It should be noted that the proposed amendments would
appear to address part of CAA's concern as the amendments
make clear that a landlord would still be allowed to charge
an applicant screening fee, as permitted under existing
law. However, a landlord would not be permitted to charge
an additional fee that is imposed at the beginning of the
tenancy to be used to reimburse the landlord for costs
associated with processing a new tenant.
In a letter of opposition, the California Association of
Realtors, California Housing Council, Apartment Association
California Southern Cities (Long Beach), Apartment Association
of Greater Los Angeles, Apartment Association of Orange County,
Berkeley Property Owners Association, Minority Apartment Owners
Association, Santa Barbara Rental Property Association, and the
San Diego County Apartment Association write:
Many cities now require interest on security deposits,
it is a local option, not needing any further
authorization, much less a mandate. We believe there
is no rational basis for requiring such interest,
especially when one considers the minor benefit to the
tenant compared to the administrative cost incurred by
the owner to account for it, do the paperwork, and
send a 1099 to each tenant. For example, 2% interest
on a $1000 deposit is only $20 per year, yet it costs
at least that much and probably more to execute the
transaction. Thus an owner's expenses will increase
and will have to be reflected in increased rent.
Ordinary wear and tear. Is reasonable and ordinary a
reasonable person standard or reasonable for the
particular tenant, e.g., someone with a dog, a group
of college students vs. a senior citizen? To the
extent that owners are not able to recover the cost of
painting and carpet replacement from the security
deposit, the owner will increase rents to other
tenants to pay for damages caused by a departing
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tenant. Why should tenants who are not responsible
for damage pay for the damage caused by others?
Most owners do a walk through at the request of the
tenant. Most also do not do them until all the
belongings are moved out so damage to the walls and
carpets cannot be hidden and because the act of moving
often causes damage. To put the onus on the owner ?
is unfair. This will turn into a "he said she said,"
particularly if a tenant opts not to attend the
inspection. Also at the conclusion of tenancies where
eviction actions have been commenced it is not a good
idea to force hostile parties to walk through the unit
together. There is no need to increase the amount of
the penalty for wrongful withholding to twice the
deposit, it was increased to $600 only a few years
ago.
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Community Organizations for Reform Now
(ACORN) (sponsor)
California Catholic Conference
California Labor Federation (AFL-CIO)
California Works Foundation
City of Santa Monica, Michael Feinstein, Mayor
Coalition for a Living Wage
Coalition for Community Health
Coalition for Humane Immigrant Rights of Los Angeles
Communications Workers of America
Congress of California Seniors
Gray Panthers California
Hotel Employees & Restaurant Employees, Union Local 483, AFL-CIO
Human Rights/Fair Housing Commission of the City and County of
Sacramento
Isla Vista Tenants' Union
Los Angeles Coalition to End Hunger & Homelessness
Mexican American Legal Defense and Educational Fund
Santa Barbara County Action Network
Santa Monicans for Renters Rights
Senior Action Network
Service Employees International Union
Southern California Association of Non-Profit Housing
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State Building and Construction Trades Council of California
Strategic Actions for a Just Economy
Western Center on Law and Poverty
One individual
Opposition
Apartment Association California Southern Cities (Long Beach)
Apartment Association of Greater Los Angeles
Apartment Association of Orange County
Berkeley Property Owners Association
California Apartment Association
California Association of Realtors
California Housing Council
Irvine Apartment Management Company
Minority Apartment Owners Association
Rental Housing Owners Association
San Diego County Apartment Association
Santa Barbara Rental Property Association
14 residential rental property owners
Analysis Prepared by : Saskia Kim / JUD. / (916) 319-2334