BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Martha M. Escutia, Chair
2001-2002 Regular Session
AB 2330 A
Assembly Member Migden B
As Amended May 21, 2002
Hearing Date: June 25, 2002 2
Civil Code 3
GWW:cjt 3
0
SUBJECT
Landlord and Tenant: Security Deposit Law
DESCRIPTION
This bill would make several changes to the security
deposit law:
Tenants would earn interest on the security deposit. Any
landlord who does not pay the accrued interest when due
would be liable for twice the amount.
A tenant's liability for failure to clean the premises
upon a termination of tenancy would be based upon whether
the unit was returned to the "same level of cleanliness"
as it was at the inception of the tenancy. "Ordinary
wear and tear (OWT)" for which a tenant is not liable,
would be defined to include, but not limited to, any
deterioration that is rectified by routine painting,
routine carpet replacement, or other routine repairs
Tenants may demand an initial inspection by the landlord
of the premises, be present during the inspection, and
receive an itemized statement listing any repairs or
cleaning that would be a basis for a deduction. The
tenant would have the opportunity following that initial
inspection to make the necessary repairs or cleaning
before the tenancy ends and the final inspection.
The penalty for a landlord's bad faith retention or claim
of a security deposit would be increased from $600 to
twice the amount of the security.
(more)
AB 2330 (Migden)
Page 2
(This analysis reflects author's amendments to be offered
in Committee.)
BACKGROUND
According to information provided by the sponsors, tenant
families make up about 45% of the state's population. This
bill would make changes in the security deposit law that
will assist tenants to recover their security deposits from
landlords.
CHANGES TO EXISTING LAW
1. Existing law permits a landlord to collect as a security
deposit for the rental of residential property an amount
equal to 2 months' rent for unfurnished residential
property, and equal to 3 months' rent for furnished
residential property.
Existing law defines security as a payment or deposit
including, but not limited to, any payment or deposit
used or to be used for any purpose, including, to remedy
a tenant's default in rent, to repair damages to the
premises caused by the tenant or his guests, exclusive of
ordinary wear and tear, or to clean the premises upon the
termination of the tenancy.
Existing law requires a landlord to provide to the
tenant, within 3 weeks of the tenant vacating the
premises, a refund of the security deposit remaining
after the landlord's deductions and a copy of an itemized
statement stating how much security was received, and how
much of the security was deducted and why. Existing law
does not require the payment of interest on the security
deposit.
This bill would:
Require a landlord to pay interest on the security
deposit at the rate of 1 percent less than the Federal
Reserve Discount Rate as of the December 31st of the
preceding calendar year. Interest would be payable
upon the termination of the tenancy or in the January
of the fifth year of tenancy, whichever occurs first.
AB 2330 (Migden)
Page 3
A landlord who fails to pay the accrued interest would
be liable for twice the amount of the accrued
interest. (This provision would not apply in any
jurisdiction that requires by local rule payment of
interest on a tenant's security deposit.)
Redefine security to also include any charges,
excepting application screening fees, that is imposed
at the beginning of the tenancy to reimburse the
landlord for costs of processing a new tenant.
Allow a cleaning charge from the deposit when
cleaning is necessary to return the unit to the same
level of cleanliness at the tenancy's inception.
Define ordinary wear and tear ("OWT"), for which a
tenant is not liable, as deterioration that is the
result of reasonable and ordinary use by the tenant
and his or her guests and licensees, and includes, but
not be limited to, deterioration that is rectified by
routine painting, routine carpet replacement, or other
routine repairs.
Specify that the burden of proof is on the landlord
to prove a claim for damages beyond ordinary wear and
tear.
Require the landlord to notify the tenant in
writing of the tenant's option to request an initial
inspection upon a termination of the tenancy by either
party. If the tenant requests an initial inspection,
the bill would require the landlord to make that
inspection prior to a final inspection after the
tenant vacates, and to provide the tenant with an
itemized list of potential deductions from the
security. The bill would give the tenant: a) the
right to be present during the initial inspection; and
b) the opportunity following the initial inspection to
make repairs or to clean, in order to avoid deductions
from the security.
State that a landlord is not prevented from using
the security for deductions itemized in the initial
inspection, so long as the deductions are authorized
by law.
AB 2330 (Migden)
Page 4
State that a landlord is not prevented from using
the security to remedy any damage or deterioration
that occurs between completion of the initial
inspection and the termination of tenancy or, as
amended by author's amendments, to remedy any damage
or excessive wear and tear that was not noticed during
the initial inspection because that damage or wear and
tear was obscured by the tenant's possessions.
Increase the penalty for a bad faith claim or
retention of a security deposit from $600 to twice the
amount of the security.
2. Existing law specifies the times and circumstances under
which a landlord may enter a tenant's dwelling.
Generally, a landlord must give reasonable notice of his
or her intent to enter the dwelling. Twenty-four hours
is presumed to be reasonable notice in absence of
contrary evidence.
This bill would permit a landlord to enter a tenant's
dwelling for the purpose of making the initial
inspection, noted above, requested by the tenant. The
bill would also specify that twenty-four hours advanced
notice shall be presumed reasonable in the absence of
contrary evidence.
COMMENT
1. Author's amendments to be offered in committee
This analysis reflects the following amendments, or the
sense of them, that will be offered by the author in
Committee. Some were promised in the Assembly or in
response to concerns raised by Committee staff; others
were desired by the sponsor.
a) Regarding the interest on security deposit
provision, delete the proposed ability of the tenant
to deduct the accrued interest from his or her rent
due. A miscalculation by the tenant would invariably
lead to a three-day notice to pay-or-quit, creating
unneeded tension between a landlord and tenant.
Rather than creating a potential pitfall for tenants,
AB 2330 (Migden)
Page 5
the proposed penalty for a landlord's nonpayment of
accrued interest, liability for twice the amount of
interest, was thought to be sufficient. Another
amendment clarifies that the interest would be
calculated yearly based on the Federal Reserve
Discount Rate as of the December 31st of the preceding
year.
b) Regarding the "ordinary wear and tear (OWT)"
provision, author's amendments would delete
"depreciation in value" from the definition of OWT,
and would specify that "routine carpet replacement,"
not all carpet replacement, would be deemed to be OWT.
c) Regarding initial inspection provisions, the
amendments would specify that the tenant's request may
be made following a notice of termination by either
side, not just upon a notice from a landlord. The
amendments will also provide that the landlord's
failure to note needed repairs or cleaning during the
initial inspection does not preclude the landlord from
seeking a deduction for that cleaning or repair when
the damage was not noticed earlier because it was
hidden from view by the tenant's possessions.
Further, the amendments would clarify that the
landlord may deduct from the security deposit for
items noted in the initial inspection report that were
not cured by the tenant so long as the deductions have
an authorized basis in the law.
2. Stated need for bill: general arguments
Proponents assert that AB 2330 is necessary because many
tenants have a difficult time retrieving their security
deposit after moving out. Particularly for working
families facing increasingly higher rents, an
ex-landlord's unfair retention of a security deposit is a
particular hardship that should not be endured. This
bill, proponents argue, would redress some of the
imbalances in California's Landlord-Tenant Law and also
provide vulnerable tenants with several new tools to
obtain the return of their security deposits.
ACORN, co-sponsor of AB 2330 writes: "Too many renters
AB 2330 (Migden)
Page 6
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."
Opponents, the landlord groups and realtors, assert that
each provision of AB 2330 would result in higher rents,
produce unnecessary antagonism between owners and tenants
and further discourage property owners from staying in
the California rental housing market.
3. New right to interest on security deposit
Proponents assert that as a matter of fairness and
equity, tenants should be paid interest on their security
deposits. In metropolitan areas where rents typically
exceed $800 to $1,000 a month, the accrued interest over
a long-term tenancy can be quite significant.
Opponents assert that the costs of administration would
far exceed the benefit to each individual tenant, with
the result that landlords would have to raise rents to
cover the extra costs. With the Federal Discount Rate
present set at less than 2%, a departing tenant with a
$1500 deposit would earn around $7.50 for each year of
tenancy, assuming the economy and the current stagnate
rates do not rebound. In five years, the tenant would
earn $37.50, an amount less than the landlord's asserted
costs to account for the interest and to send out the
check and the IRS 1099 Interest Paid form.
Proponents respond that the opponents' administrative
burden argument is overinflated, and that it is not at
all clear that the IRS requires the issuance of a 1099
form.
Opponents also point out that a number of local
jurisdictions require owners to pay the interest to
tenants (Berkeley, East Palo Alto, Hayward, Los Angeles,
Rohnert Park, Santa Cruz, San Francisco, Santa Monica,
Watsonville, West Hollywood, and Santa Barbara), which AB
2330 would not preempt and affect. Opponents contend that
if interest of deposits were an issue of statewide
concern, there should be uniformity.
AB 2330 (Migden)
Page 7
Prior legislation: SB 68 (Kopp) of 1992, would have
required landlords to pay 5% on security deposits of more
than $50 that is held for more than one year, failed in
this Committee. That measure was identical to SB 1755
(Kopp) of 1990 which passed this Committee but failed
passage on the Senate Floor.
No takings issue, unlike some local ordinances: That 5%
interest requirement of SB 68 was adapted from many local
ordinances at the time that required payment of interest
at that rate. However, the plummeting economy has caused
interest rates to dive far lower than 5%, causing some
landlords to pay the difference out of their pockets.
In Action Apartment Association v. Santa Monica Rent
Control Board (2001) 94 Cal.App.4th 587, the Second
District Court of Appeal ruled that a landlord may assert
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.
This bill, by pegging the interest rate at 1 percent less
than the floating Federal Reserve Discount Rate and
allowing the landlord to keep one percent difference in
interest (or more if invested wisely) as administrative
costs, appears to avoid the takings question.
4. New definition of ordinary wear and tear; burden on
landlord to prove excessive wear
Proponents assert that a statutory definition of
"ordinary wear and tear (OWT)" is important to avoid
misunderstanding as to what is considered "damage" (a
permissible use of the security deposit) as opposed to
"ordinary wear and tear," for which a tenant is not
liable.
This bill, beginning on page 7, line 1, would define OWT
as "the deterioration of a premise that is the result of
reasonable and ordinary use by the tenant or a guest or
licensee of the tenant." (Author's amendments will
strike out "or depreciation in value" from the
definition, which was deemed vague and inapt.) The bill
AB 2330 (Migden)
Page 8
further specifies that OWT "is deterioration that occurs
through every day usage, rather than unusual damage
caused by tenant abuse or carelessness and includes, but
is not limited to, deterioration that is rectified by
routine painting, routine carpet replacement, or other
routine repairs." (Author's amendments will also add
"routine" to carpet replacement. This addresses one
major concern of the opponents. However, other concerns
remain.) If the landlord claims a tenant is responsible
for damages beyond ordinary wear and tear, the landlord
would have the burden of proving that claim.
a. Definition based on "routine" may be vague; may
suggest some damage is acceptable
A definition based upon the word "routine" might be
vague and subject to varying interpretation, thus
leading to litigation. ACORN responds that the use
and the definition were intended to exemplify, rather
than to create a definitive list, and that a court
would decide any dispute. For example, a judge
reviewing a claim that the carpet replacement or
painting was not "routine," and thus chargeable to the
tenant, would look at the term of the tenancy, the
amount of wear and tear expected from reasonable and
ordinary every day usage, the actual wear and tear
compared to the life expectancy of the original paint
job or carpet, and decide whether replacement or
repainting was routine or necessitated by the tenant's
excessive wear and tear.
Another issue is that the definition of ordinary
wear and tear would include deterioration that can be
fixed by "routine repair," thus implying that some
damage is acceptable. This is uncomforting to
opponents. The California Apartment Association (CAA)
writes that an owner has always been able to use the
security deposit to repair damages to a unit. Under
AB 2330, however, the owner may not charge for
"routine" repairs. CAA's conundrum is: "What is a
'routine repair' if not the repair of something in the
premises that is damaged?" (Emphasis in original.)
ACORN responds that this provision was intended to
ensure that the tenant does not get charged for
repairs when things just wear out due to normal usage.
AB 2330 (Migden)
Page 9
An example would be a broken plumbing valve.
b. Landlord groups say bill would lead to increased
costs and litigation
Opponents assert that trying to define ordinary
wear and tear is a worthy effort, but that AB 2330
currently falls short. Opponents state that the
current definition is vague and would invite
litigation. It would also cause owners to shift the
costs of non-chargeable "routine" painting, carpet
replacement and repairs to other tenants. The
California Association of Realtors ("CAR") asserts
that courts have adequately defined "ordinary wear and
tear" and that this bill would force a re-examination
of the issue when there is no need to do so.
Opponents assert that the issue is far too complicated
and important to be legislated hastily, and urge that
this provision be dropped so that the parties can work
on a better definition in the fall interim.
WOULD THE DEFINITION OF ORDINARY WEAR AND TEAR BENEFIT
FROM FURTHER STUDY AND REFINEMENT?
c. Burden on landlord to prove claim of excessive wear
and tear
CAR objects to requiring a landlord to prove any claim
that a tenant is liable for damages beyond ordinary
wear and tear. CAR asserts that this is a substantive
change in the law, but does not explain why. (Under
current law, the landlord must document his or her
deductions from the security deposit and must
presumably show that his deductions are permitted
under the law. Implicitly, this would seem to put the
burden on the landlord. AB 2330 would make that
burden express.)
5. New right of initial inspection and opportunity to repair
and clean
Proponents assert that this provision, allowing for an
initial inspection prior to the tenant moving out, would
give tenants a list of what they need to fix or clean in
AB 2330 (Migden)
Page 10
order to get their whole deposit back. They assert AB
2330 would help tenants avoid any unnecessary loss of
their security deposit, and help landlords by enabling
the tenant to return the unit all clean and fixed up.
As amended by author's amendments, the bill would require
that tenants be given a notice of this right to an
initial inspection within a reasonable time after a
notice of intent to terminate the tenancy is given by
either side. This process seems geared to
month-to-month tenancies, where a termination notice is
needed to end a tenancy. In the case of a fixed term
lease, however, such as a one-year lease, the term
automatically expires at the end of the fixed term. In
that case, no notice of termination is given or received.
IF ENACTED, SHOULD THE BILL BE AMENDED TO ALSO APPLY TO
FIXED TERM LEASES?
a. Opponents say proposed process will encourage, not
lessen, disputes
Opponents say that this provision is fraught with
trapdoors leading to litigation. Among the concerns
are:
What happens if the damage is not noted upon
the initial inspection?
One big problem is that because of the tenant's
furnishings or possessions in place during an initial
inspection, all the damage to the walls, carpets, or
floors, or to other parts of the unit may not be
identifiable. Any initial inspection will necessarily
be less in depth than the final inspection because,
otherwise, the tenant's possessions and furnishings
would have to be moved, which would invade the
tenant's privacy and comfort and enjoyment of the
premises. Thus, any itemized statement given to the
tenant following the initial inspection is likely to
be incomplete, leading to conflict when other
deficiencies are discovered in the final inspection.
While the bill would specifically state that this
AB 2330 (Migden)
Page 11
initial inspection process does not prevent a landlord
from charging for damage that occurs between the
initial inspection and the final inspection, the
burden would presumably be on the landlord who is
seeking the deduction to prove when the damage
occurred. Left unsaid is the right of the landlord to
charge a security for damages that were not identified
at the initial inspection, thus raising the
implication that those damages cannot be recovered if
they were not identified at the initial inspection.
ACORN, the sponsor, has recognized the potential
unfairness of the above provision and intends to offer
as an author's amendment a general exemption that
would allow a landlord to use the security for damages
that were not noticed during the initial inspection
because of the tenant's furniture and belongings.
While this approach may also result in a "he said, she
said" situation, ACORN is content to leave the final
determination to a judge.
What happens if the tenant requests to be
present at the initial inspection, but is a no-show?
To address this concern, ACORN intends to offer an
amendment to permit the landlord to conduct the
inspection at the scheduled time if the tenant fails
to show, so long as proper notice was given and an
appointment was made for that scheduled time. This
amendment will reduce the administrative nightmare of
having to try to reschedule, particularly if their
schedules are incompatible.
What if the parties are not reasonable in
scheduling an appointment, or if a dishonest tenant
lies about not receiving the required notices?
Separate from the other opponents, CAR expresses the
concern that that a tenant may insist upon a weekend
appointment when the landlord conducts business during
the week. CAR also expresses concern that a tenant
could lie about receiving the notice of a tenant's
right to an initial inspection, or lie about receiving
the itemized statement, thus barring the landlord from
AB 2330 (Migden)
Page 12
making any claim against the deposit.
b. Pending legislation may lengthen time between
initial and final inspection
The Assembly Housing Committee recently approved SB
1403 (Keuhl), which would require a 60-day notice
instead of a 30-day notice to terminate a
month-to-month tenancy. It will next be heard by the
Assembly Judiciary Committee.
If enacted, the longer notice could lengthen the time
between the initial and final inspection. The longer
the time between the initial inspection, the greater
the possibility that disputes will arise because of
new items on the final inspection list that were not
on the initial inspection list. Perhaps, if SB 1403
is approved, or maybe in general just to reduce the
time between the inspections and possible bickering
between the parties, the bill should specify that the
initial inspection should take place no earlier than
two or three weeks prior the termination date. This
framework should still give the tenant ample time to
clean and repair, while reducing the time period when
new damage could occur.
SHOULD THE BILL SPECIFY A TIMEFRAME FOR THE INITIAL
INSPECTION?
c. Proposed right of repair would be a nightmare, say
opponents
Following the initial inspection AB 2330 would
provide a tenant with the opportunity "to make repairs
or clean in order to avoid deductions from the
security." (Page 7, lines 37 to 40.)
Opponents assert that allowing the tenant to make
repairs is bad policy and is a huge liability concern
for landlords. Opponents say that many leases
commonly prohibit a tenant from making their own
repairs to a unit because of liability issues. For
example, a bad repair of an electrical switch would
not even be discovered until it causes a fire, leaving
a landlord without the ability to correct the defect.
AB 2330 (Migden)
Page 13
Worse, the improper repair could cause an electrical
fire that could spread through the entire rental and
to other units if the rental is in an apartment
complex, creating huge liability losses for the
landlord and its insurer.
ACORN asserts that this right of the tenant to make
repairs is akin to the tenant's right to "repair and
deduct" under the law when the landlord fails to
repair a serious deficiency in the unit after notice
by the tenant. ACORN also asserts that this remedy is
intended for the repair "of little things, not big
things."
The comparison to the "repair and deduct" law may
be a stretch. Under Civil Code Section 1942, if a
landlord fails after a reasonable notice period to
repair "dilapidations rendering the premises
untenantable which the landlord ought to repair," the
tenant has the right to make the repairs and deduct
their costs from the next monthly rent that is due.
Rather than a limited and conditioned right, AB 2330
would give the tenant an outright right to repair.
The "repair and deduct" law also presumes that the
tenant would give the landlord a copy of the repair
receipt being used to offset the rent, thus allowing
the landlord to verify if the work was done by a
reputable contractor and to seek redress if the repair
was faulty. AB 2330 does not appear to provide the
same protections.
ACORN has acknowledged some of the concerns and is
willing to consider an amendment to require that the
repairs be done by a licensed contractor. Other
possible amendments under consideration are: a)
requiring the landlord's authorization; and b)
limiting the right to "routine repairs."
Opponents assert that this provision is also too
important to draft hastily and request added time to
work out a workable framework in the interim.
WOULD THIS PROCESS FOR AN INITIAL INSPECTION AND A
TENANT'S TO RIGHT BENEFIT FROM FURTHER REFINEMENT?
AB 2330 (Migden)
Page 14
6. Increased penalty for bad faith claim or retention of
security deposit
This bill would make a landlord liable for twice the
amount of the security deposit for any bad faith claim or
retention of the security. Proponents assert that the
$600 penalty is wholly inadequate in light of today's
high security deposits, and that a higher penalty is
needed to deter bad faith withholding.
Opponents assert that there is no need to increase the
amount of the penalty for wrongful withholding to twice
the deposit, and point out that the penalty was increased
to $600 (from $200) only a few years ago in 1993.
7. Clarifying the basis of the cleaning deduction
Existing law provides that a landlord may use the
security deposit for "the cleaning of the premises upon
termination of the tenancy."
This bill would modify that right to allow a deduction
for cleaning "necessary to return the unit to the same
condition it was in at the inception of the tenancy."
The sponsor asserts this is the current law, and that
clearly stating the law in the security deposit statute
would allow each side to know its responsibilities.
Opponents say that this provision along with the ordinary
wear and tear provision would likely lead to tenants
being required to sign a "move-in" statement concerning
the condition of the premises in order to limit disputes
concerning the condition of the property. There is also
a concern that with respect to present tenancies where
the tenant moved in without a move-in statement, this
provision might make it more difficult for a landlord to
assess a cleaning charge. Basically, it would be a
"he-said, she said" swearing contest for a judge to
decide.
8. Expanding definition of security deposit
AB 2330 would expand the definition of security to also
mean any payment or deposit, except for application
screening fees expressly permitted by law, that is
AB 2330 (Migden)
Page 15
imposed at the beginning of the tenancy to be used to
reimburse the landlord for costs associated with
processing a new tenant.
According to proponents, some tenants have been charged
non-refundable tenant initiation fees, or placement fees,
by greedy landlords in a hot rental housing market.
These fees are not for the purpose of processing new
tenants, but to curry the landlord's favor to select that
tenant over other tenants. AB 2330 would prohibit these
fees that some landlords impose at the outset of tenancy.
Support: Santa Monicans for Renters Rights; Southern
California Association of Non-Profit Housing; Hotel
Employees & Restaurant Employees Union Local 483
and Local 814; Strategic Actions for a Just
Economy; California Labor Federation AFL-CIO;
Senior Action Network; SEIU, Local 434B and Local
250; State Building and Construction Trade Council;
Gray Panthers; Congress of California Seniors; Isla
Vista Tenant's Union; Coalition for a Living Wage;
Santa Barbara County Action Network; Coalition for
Humane Immigrant Rights of Los Angeles; Coalition
for Community Health; Building and Construction
Trades Council, Alameda County, AFL-CIO; Occidental
College; American Friends Service Committee (AFSC);
United Farm Workers of America, AFL-CIO; City of
Berkeley; San Diego-Imperial Counties Labor
Council; Community Coalition for Substance Abuse
Prevention and Treatment Housing Rights Center; CA
Council of Churches; Environmental Health; Western
Center on Law and Poverty; Interfaith Coalition for
Immigrant Rights; California Catholic Conference;
Mayor and City of Santa Monica; MALDEF: Bet Tzedek
Legal Services; Legal Services of Northern
California; United Food and Commercial Workers,
Local 870
Opposition: Apartment Associations of California Southern
Cities (Long Beach), Greater Los Angeles, and
Orange County; Berkeley Property Owners
Association; California Apartment Association;
California Association of Realtors; California
Housing Council; Minority Apartment Owners
Association; Rental Housing Owners Association;
San Diego County Apartment Association; Santa
AB 2330 (Migden)
Page 16
Barbara Rental Property Association; numerous
property owners
HISTORY
Source: Association of Community Organizations for Reform
Now (ACORN); Service Employees International Union
(SEIU), State Council
Related Pending Legislation: SB 1403 (Kuehl) - Pending in
Assembly Judiciary
Prior Legislation: SB 433 (Rosenthal), Chap. 755, Stats.
1993 increased to $600 the penalty for a bad
faith retention or claim of a security
deposit
SB 68 (Kopp) of 1992, would have required
landlords to pay 5% interest on security
deposits, failed in Committee
Prior Vote: Assembly Floor: 42 - 32
Assembly Judiciary Committee: 7 - 4
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