Guide to Berkeley’s Rent Stabilization Program
Rent Control & Eviction Protection
February 2013

Secuity Deposits - State and Local Law 

State Law Regarding Security Deposits

Security deposit defined. Residential security deposits are regulated by state law (Civil Code section 1950.5) and are defined as any payment, fee, deposit or charge, that is imposed at the beginning of the tenancy as an advance payment of rent, or to be used for recovering rent defaults, repairing damages caused by the tenant, or cleaning. This does not include an application or screening fee. Money paid as the first month’s rent isn’t considered a security deposit, but money paid in excess of the first month’s rent (including what is called “last month’s rent”) is considered part of the deposit. Generally, a security deposit may not exceed two times the monthly rent for an unfurnished unit or three times the monthly rent for a furnished unit. It is unlawful for a lease or rental agreement to make a security deposit non-refundable.

Deductions from deposit. A landlord may deduct from a tenant’s security deposit only the amount that is reasonably necessary to: (1) cover rent defaults, (2) repair damages a tenant or a tenant’s guest caused other than normal wear and tear, (3) do necessary cleaning (for tenancies starting after January 1, 2003, defined as the amount of cleaning needed to return the unit to the same level of cleanliness as at the beginning of the tenancy), and (4) if allowed by the lease, cover the cost of restoring or replacing personal property (including keys) or furniture, excluding ordinary wear and tear.

At a reasonable time after either party gives notice that the tenancy is being terminated, or before the lease expires, the landlord must notify the tenant in writing of his or her right to request an initial inspection of the unit and to be present at the inspection. The purpose of the inspection is to identify needed cleaning for the tenant to perform before moving out so as to avoid deductions from the security deposit. If an inspection is requested, it should occur at a mutually agreed upon time no earlier than two weeks before the tenancy is to end. If a time cannot be agreed upon, the tenant may either cancel the inspection or allow the inspection to proceed in his or her absence. The landlord must give 48 hours’ prior written notice of the inspection, unless the tenant waives this requirement in writing.

Immediately after the inspection, the landlord must provide the tenant with an itemized list of repairs and cleaning that need to be done to avoid authorized deductions. This statement must include the text of Civil Code section 1950.5, subdivision (b) (setting forth authorized deductions from the security deposit, listed above). The tenant may then, before the end of the tenancy, address the identified problems. The landlord may use the deposit for authorized deductions that were itemized in the statement but not cured, arose after the initial inspection, or were not identified during the inspection because they were concealed by the tenant’s belongings.

Within 21 days after the tenant (or tenants) leave the unit vacant1, the landlord must (1) furnish the tenant with a written statement itemizing the amount of, and purpose for, any deductions from the security deposit; and (2) return any remaining portion of the deposit to the tenant. Beginning in 2013, after either party has given notice to end the tenancy, a landlord and tenant may agree that the landlord may electronically deposit the security deposit refund into the tenant’s bank and that the landlord may email the statement of any deductions to the tenant.

1 Where several roommates live together and have paid a deposit, the landlord is not required to return the deposit until the unit is returned to the landlord vacant.  

If more than $125 is deducted from the deposit for cleaning and repairs together, the landlord must attach to the itemized statement copies of documents showing the landlord’s charges and costs to clean and repair the unit. If the landlord or his or her employee did the work, the statement must describe the work performed, the time spent, and the reasonable hourly rate charged. If another person or company did the work, the landlord must provide their name, address, and telephone number, and a copy of their bill, invoice or receipt for the work. A deduction for materials or supplies must include a copy of a bill, invoice or receipt.

The tenant may give up the right to the documentation requirement in writing, but even so, the tenant may, within 14 days of receiving the landlord’s itemized statement, request any omitted documentation, and the landlord must provide it within 14 days of receiving the request.

If, within 21 days of the unit being vacated, necessary repairs cannot reasonably be completed, or if a service provider does not make the documentation available, the landlord may deduct an amount based on a good-faith estimate of the charges, and provide the required documentation within 14 days of completing the repairs or obtaining the documentation.

All mailings to the tenant after the tenancy ends must be sent to the tenant’s new address. If the tenant did not furnish a new address, the mailings must, by law, be sent to the tenant at the vacated address. Therefore, to avoid the risk that the deposit is not forwarded from the old address to the new, tenants are urged to leave the landlord a new address when moving. A tenant who does not receive the refund and accounting within 21 days, or disputes the amount claimed by the landlord, may sue the landlord for the disputed amount (in Small Claims Court if the amount is less than $10,000) and up to twice the amount of the deposit for the “bad faith retention” of (i.e., the unreasonable refusal to return) any security. In court, the landlord has to prove that the amounts retained were reasonable.

Alternatively, a tenant may file a petition with the Board to recover the amount allegedly owed. (Go to Petitions and Forms for more information.) Each forum has its advantages and drawbacks. Unlike small claims court, there is no fee to file a petition, and a Rent Board hearing is less formal than a court proceeding. However, if a landlord refuses to comply with a Rent Board hearing examiner’s decision ordering a security deposit refund, the tenant will have to go to court to enforce the Rent Board’s decision. Also, the Rent Board is not authorized to award damages for “bad faith retention” of the security deposit.

A tenant may also consider using the Rent Board’s mediation services, which will occur only if the landlord agrees. Rent Board staff will act as a neutral third party to help the tenant and landlord reach a mutually acceptable resolution.

Effect of sale on deposit. A landlord who sells a rental property must either: 1) transfer the deposit to the new landlord; or 2) return the deposit to the tenant. In either case, the selling landlord may deduct any proper amounts, and must supply the tenant with an itemized accounting of the deductions and the supporting documentation described above. If the seller transfers all or part of the deposit to the new landlord, the seller must also notify the tenant of the transfer, and the new landlord’s name, address, and telephone number. All notices must be sent to the tenant by first-class mail or personal delivery. If the deposit is not refunded or transferred, both the former and current landlords are responsible to the tenant for the whole amount.  

Berkeley Law Regarding Security Deposits and Interest on Deposits

The sections of the Rent Stabilization Ordinance and the Regulations governing interest on security deposits (B.M.C. section 13.76.070; Regulations 701-706) apply to all units that are required to be registered. They also apply to some units that do not have to be registered with the Board: those constructed after 1980, single-family residences described in Regulation 508, units owned or leased by the Berkeley Housing Authority, and units rented to federal Section 8 participants.

Landlords hold security deposits for the tenant’s benefit. Each December, landlords must return interest accrued through October 31st of the year, through either a cash payment or a rent rebate.

Landlords may choose one of two options to calculate the interest. One is by using the average yield rate for six-month certificates of deposit as reported by the Federal Reserve Board. Alternatively, a landlord may choose to keep security deposits in an insured account at a financial institution located in Berkeley, and pay the 12-month average of the average rates of interest offered on six-month CDs by commercial banks located in Berkeley. (This rate is generally lower than the Federal Reserve rate.) A landlord who chooses this option must furnish the tenant and the Rent Board the identity of the bank account on an approved form.

After the tenant has moved out, a landlord must pay the tenant the balance of any interest accrued at the average monthly rate from the prior November 1st to the departure date (along with the appropriate part of the security deposit).

The Rent Board publishes the annual interest rates, as well as each month’s applicable move-out interest rate, on its website. Security deposit calculators can also be found on the website.

A tenant who has not received a refund of security deposit interest by January 10 for any prior years may, after giving the landlord 15 days’ advance written notice of intent to do so, deduct the interest from rent. The tenant may deduct at the rate of 10 percent simple interest for the immediately preceding year, and at the Federal Reserve rate for any years before that. The landlord may instead refund the interest at the appropriate rates before the deduction is to be made. (Regulation 704.)

Landlords may not increase the amount of the security deposit for any tenant during the term of the tenancy, even if the rent ceiling increases during the term. (Regulation 705.) A “pet” exception applies when the landlord lets a tenant have a pet in the unit, when pets were previously forbidden. Nonetheless, the total deposit held still cannot exceed two times the monthly rent for an unfurnished unit and three times the rent for a furnished unit.

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