If your building is in one of the nine cities listed below, you must pay interest on the security deposit once a year and at the end of the tenancy. The cities of Watsonville and Santa Cruz* do not have rent control, however, they also require you pay interest on security deposits once a year. The interest rates for each city fluctuate annually, so be sure to get the new rate each year from your local rent control board or by calling the city. [*Santa Cruz has recently enacted a new emergency rent ordinance.]
PENALTIES – Some cities have set penalties for the landlord’s non-compliance to the rule of paying interest. The cities and their penalties are:
- Berkeley – If not paid by January 10th each year, the tenant may deduct the interest at a rate of 10% from their next rental payment
- Hayward – Landlord can be subject for three times the amount of unpaid interest owed
Interest Bearing Accounts – East Palo Alto and Santa Monica require that you keep all security deposits in a separate interest bearing account and also require that the account be insured by FSLIC or FDIC. In some cities, if these accounts pay less interest than what you are required to pay your tenants required by the rent control ordinances, you only have to pay the interest that the bank is paying you. Please be sure to check with your city for exact pay-out requirements.
Below is a list of cities and their requirements regarding interest to be paid on security deposits that are held over one year:
Interest Payments Due
Interest Bearing Account
|Berkeley||In December of each year||Not required|
|East Palo Alto||In December of each year||Required -insured by FSLIC or FDIC|
|Hayward||On move-in anniversary date||Not required|
|Los Angeles||Once a year||Not required|
|San Francisco||On move-in anniversary date||Not required|
|Santa Cruz||On move-in anniversary date||Not required|
|Santa Monica||NOT REQUIRED||NOT REQUIRED|
|Watsonville||On January 1 each year||Not required|
|West Hollywood||In Jan or Feb each year||Not required|
How Should You Pay Interest?
Payments may be made by check or a rent credit, but either way, you should pay or notify your tenants of the rent credit on or before the specified date set by each city ONCE A YEAR AND at the end of their tenancy which you must include on the security deposit refund form.
- Once a year – Send each tenant a check stating it is for interest on their security deposit before the appropriate date listed above OR notify them of the rent credit in writing instructing them to deduct the interest amount from their next month’s rental payment only. If your building is under Los Angeles rent control, it is advisable to do this in January each year to pay them for the previous year’s interest.
- Upon Move-Out: Use AOA’s form #133, Security Deposit Refund Letter, to include interest as noted on the form.
Patricia A. Harris is Senior Editor of the Apartment Owners News & Buyers Guide. This article is a general guide and has no legal representation. It is suggested that you contact an attorney for legal advice should the need present itself.
Correction to printed June article: The Santa Monica Rent Control Board regulations do not require an owner to pay a tenant interest on their security deposit.