CA Legislation: Two Bills To Watch

By Ron Kingston

Just before another thousand or so bills are introduced by the members of the California Legislature this year within the next 10 days, we thought we might give you a preview of two of the bills that have been introduced to date.

Security deposits are clearly under attack … again … and by the same member of the legislature that successfully authored a bill last year on this subject matter.

Assembly Member Pellerin (D-Santa Cruz) wants to change the way security deposits are to be returned to former renters. 

Current law regulates the terms and conditions of residential tenancies, including setting the terms of the amount of security to one month’s rent for new tenancies. This allows a lessor to claim of the security only those amounts as are reasonably necessary. Security for these purposes is defined as any payment, fee, deposit or charge, including any payment, fee, deposit or charge that is imposed at a tenancy’s beginning to reimburse a lessor for costs associated with processing a new tenant or that is imposed as an advance payment of rent. The law also requires a lessor to provide a lessee a copy of an itemized statement and return the security’s remaining portion to the lessee by personal delivery or by first-class mail, postage prepaid no later than 21 calendar days after the lessee has vacated the premises. Finally, the law authorizes a lessor and lessee to mutually agree to have the lessor deposit electronically the security’s remaining portion to a bank account or other financial institution designated by the lessee or provide a copy of the itemized statement to an email account that is provided by the lessee.

AB 414 would instead require a lessor to provide the lessee a copy of the itemized statement and return the security’s remaining portion in the manner the security was received or requested by the renter for the return of the security’s remaining portion. If returning the security’s remaining portion by mail, the bill would require the lessor to return the security’s remaining portion and provide a copy of the itemized statement by certified mail. If returning the security’s remaining portion by electronic funds transfer, the bill would require the lessor to deposit the security’s remaining  portion to a bank account or other financial institution designated by the lessee and provide a copy of the itemized statement to an email account provided by the lessee. If the lessor received the security by electronic funds transfer, the bill would require the lessor to return the security’s remaining portion by electronic funds transfer and provide the lessee the copy of the itemized statement pursuant to the terms of this bill upon the lessee’s request.

Do you see any issues with the convoluted proposed new law relating to returning the security deposit (if any)? Well, our association sure does! There is no dispute we must account for the lawful deduction of the deposit. There is no dispute we are to strictly follow the time deadlines and the amount of security. The issue for the members of the Assembly is how we are to send the remaining amount of security (if any) and how we are to send our statement justifying lawful deductions. Pursuant to the terms of the bill, a lessee can change at will where we are to send our statement and the remaining security. What can come of this? Bad faith claims and litigation.

The second bill is authored by Senator Perez. SB 52 addresses rental rates and occupancy levels by prohibiting lessors from using algorithmic devices.

Existing law generally governs notices and the amount of increasing residential rent. The Costa-Hawkins Rental Housing Act prescribes statewide limits on the application of local rent control on specified residential rental properties. That act authorizes a lessor to establish the initial and all subsequent rental rates for a dwelling or unit that meets certain criteria.

SB 52 would make it unlawful for any person to sell, license or otherwise provide residential rental property owners an algorithmic device that advises on rental rates or occupancy levels for residential dwelling units. It would also make it unlawful for a lessor to use an algorithmic device to set rental rates or occupancy levels for residential dwellings. The state Attorney General, and the city attorney or county counsel in the jurisdiction in which the rental unit is located to file a civil action for a violation of the bill and it would authorize any lessee to file a civil action for any violation of the terms of the bill.

Numerous businesses would no longer operate. Advice, guidance, surveys, training regarding rental rates in communities would come to a screeching halt. Use of credit scoring and credit reporting will remarkably change should SB 52 become law. Use of the fair credit act will come under scrutiny. Use of our anti-discrimination laws will become intertwined in the provisions of this legislative measure. 

Just when you thought you were safe treating your lessees equitably and fairly, two measures that have been introduced in the legislature will undoubtedly challenge ownership and management of residential rental units in our state.

Ron Kingston is president of California Strategic Advisors.