Security Deposit Interest - Questions and Answers
Q. How have the rules on tenant security deposit interest changed?
A. The Rent Board amended Regulation 702 to provide an alternate rate of interest for tenant security deposits that are kept in accounts at savings institutions located in Berkeley. The amendment becomes effective on November 3, 2008.
Q. What is the new alternate rate of interest?
A. For security deposits held in a Berkeley account, the rate of interest will be equal to the 12-month average of the average rates of interest (APY) paid on the first business day of each month for six-month certificates of deposits ($5,000 minimum deposit) by insured commercial banks doing business in the City of Berkeley.
Q. How does a landlord qualify to pay the alternate rate of interest when making the annual interest refund payment in December of each year?
A. To qualify for the Berkeley CD rate for the December interest refund payment, a landlord must:
1. Place the tenant’s security deposit in an insured account at a bank or credit union physically located within the City of Berkeley;
2. Keep the deposit in the account for the twelve consecutive months ending October 31st; and
3. When the interest is returned to the tenant in December, give the tenant and the Rent Board a copy of a completed Notice of Security Deposit Interest form that identifies the bank account where the deposit is kept.
Q. When does this new rate take effect?
A. The amendment to Regulation 702 becomes effective on November 3, 2008, which means that it will not affect the interest payment due in December 2008. The new rate will be effective for the December 2009 interest payment for landlords who have their tenant’s security deposit in a Berkeley account on or before November 3, 2008, and hold it there until October 31, 2009.
Q. How will I know what the Berkeley CD rate is?
A. The Rent Board will track the six-month CD rates at Berkeley banks on the first business day of each month and compute the averages. Then, each November the Rent Board will notify landlords what the applicable rate is for the December interest refund payment. The information will also be available on the Rent Board’s website: www.ci.berkeley.ca.us/rent/
Q. Does the deposit have to be placed in a Six-Month CD account to qualify for the Berkeley CD rate?
A. No. As long as it is in an insured account at a bank branch or credit union located in Berkeley and held there for twelve consecutive months, the type of account does not matter.
Q. What if the deposit is kept in an account at the head office of a bank located in another city but that has branches in Berkeley – would that qualify for the Berkeley CD rate?
A. No. The account must be at the Berkeley branch in order to qualify.
Q. What rate applies if the deposit is placed in a Berkeley account but for only part of the year?
A. If the security deposit was placed in a Berkeley account at the beginning of the tenancy and the tenancy has existed for less than a year, then the Berkeley CD rate would apply when refunding interest the next December. But if the tenancy has existed for a year or more and the deposit was in a Berkeley account for only part of the year, then the standard Federal Reserve CD rate would apply. In other words, unless the tenancy has existed for less than a year, the deposit must be held in a Berkeley account for the full twelve months in order for the Berkeley CD rate to apply.
Q. Is a landlord required to place a tenant’s security deposit in an insured bank account?
A. No. Landlords may still use the tenants’ security deposits for any purpose they want but, if the security deposit is not held in an insured account at a Berkeley savings institution, the landlord will have to refund interest at the Federal Reserve CD rate.
Q. Does the landlord have to disclose the bank account number to the tenant when returning security deposit interest at the Berkeley CD rate?
A. No. The Notice of Security Deposit Interest form, which the landlord must use in order to qualify for the Berkeley CD rate, will require the landlord to identify only the bank where the deposit is held and the last four digits of the account number.
Q. What interest rate applies when the tenant vacates the apartment?
A. If the deposit qualified for the Berkeley CD rate for the December payment and remained in a Berkeley account up until the end of the tenancy, then the Berkeley CD rate would apply for the months from November to the move-out day. Also, if the tenant vacates during 2009 and the security deposit was in a Berkeley account from November 2008 until move-out, the Berkeley CD rate would apply upon move-out. If the deposit was not held in a qualifying Berkeley account, then the Federal Reserve CD rate would apply.
Q. What happens if the landlord uses the wrong rate when refunding the interest?
A. If the landlord pays at the Berkeley CD rate but did not qualify for it – because the landlord cannot verify that the security deposit was held in a Berkeley bank for 12 months – then the landlord must pay interest at the legal rate of interest on unpaid judgments as provided in Code of Civil Procedure section 685.010, which is currently 10%.
Q. What should tenants do if they think that they have been paid the wrong rate of interest?
A. If a tenant has received interest at the Berkeley CD rate but has reasonable grounds for thinking that the landlord was not qualified for that rate, within 60 days of receiving the interest the tenant must ask the landlord, in writing, to verify to the Rent Board that the tenant’s deposit was held in an insured account at a bank or savings institution located within the City of Berkeley for the full time stated. The tenant should send a copy of the verification request to the Rent Board. The Rent Board will then require the landlord to provide verification and will notify the tenant of the result.
Q. How does a landlord verify that the deposit qualified for the Berkeley CD rate?
A. After receiving a verification request from a tenant, the landlord must produce copies of bank statements for inspection by Rent Board staff confirming that amounts equal to the deposit amounts have been held in a Berkeley account for the required time. Verification will require the landlord to account for all security deposits that the landlord is holding. The landlord’s banking records will be treated as confidential and will not be disclosed to the tenant. Upon reviewing satisfactory documentation, staff will notify the tenant that the landlord’s eligibility for the Berkeley CD rate has been verified.
Q. What happens if the landlord does not provide Rent Board staff with satisfactory verification?
A. If the landlord does not provide satisfactory verification of eligibility for the Berkeley CD rate, the landlord and tenant will be notified that the tenant is entitled to interest at the legal rate of interest on unpaid judgments as provided in Code of Civil Procedure section 685.010 (currently 10%). The landlord will be directed to pay to the tenant the difference between the amount paid and the amount due under Code of Civil Procedure section 685.010. A landlord who disagrees with the staff’s determination may request a hearing before a Rent Board hearing examiner.