New Report Shows Lack of Accountability for Improper Security Deposit Withholding

According to the report, California landlords hold an estimated $5 billion of tenant security deposits, and annually in excess of $1 billion of deposit money is in play when tenants vacate their homes and landlords must decide whether to return deposits. Sixty percent of the tenants surveyed reported experiencing unfair deposit withholding. The report includes an analysis of small claims cases revealing that only in the rarest cases do courts impose penalties on landlords that improperly withhold deposits.

“It’s even worse that we thought,” commented Dean Preston, Executive Director of Tenants Together, California’s statewide organization for renters’ rights. “Tenants are being ripped off to the tune of tens, if not hundreds, of millions of dollars each year.”

The report contains the following findings from a survey of Tenants Together members from across the state:

• 60% experienced unfair withholding of some or all of their deposit;

• 53% did not receive any of their deposit funds within 21 days of vacating the last time they moved;

• 36% reported that their entire deposit was never returned the last time they moved.

The report also analyses of the outcomes of security deposit cases filed by tenants in small claims courts to recover their deposits. The three-courthouse study, the first of its kind in California, found:

• Tenants prevailed in over 70% of the cases that went to judgment;

• In only 3.5% of the security deposit cases filed by tenants was a landlord assessed a penalty by the court.

The report recommends two reforms to ensure that tenants are not unfairly deprived of their deposits. First, it is recommended that tenant deposits be kept in accounts that are separate from the landlord’s personal. Second, it is recommended that mandatory penalties be imposed for improper retention of security deposit funds by landlords. Together these reforms will help ensure that deposit funds are preserved until the end of the tenancy and are returned as required by law.

Responding to complaints of unfair security deposit withholding across the state, Senator Mark Leno (D – San Francisco) introduced Senate Bill 603 earlier this year. This statewide bill would make the changes recommended in the new report (requiring separate accounts for deposits and mandatory penalties for improper withholding), and also address a longstanding inequity regarding security deposit interest. SB 603 is co-sponsored by Tenants Together, Western Center on Law and Poverty and California Rural Legal Assistance Foundation. SB 603 will be heard in the Senate Judiciary Committee on May 7, 2013.