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From the April 2007 Newsletter:
By Peter Reitz, Executive Director
In the February newsletter we published this year’s
interest rate to be paid on security deposits held by
the property owner.Many of you asked why the interest
rate is so high. Chapter 49 of the San Francisco
Administrative Code, which sets forth the regulations
on security deposits for residential rental property,
was amended, effective August 2002, to require the
Rent Board to calculate this rate annually. Previously
the rate had been a fixed 5% per year.
The year’s interest rate is the average of the 12
monthly “Discount Window” rates posted by the
Federal Reserve Bank on the Federal Reserve
Statistical Release website. The Rent Board calculates
and announces the year’s rate the first week of each
January, using the preceding 12 monthly rates, ending
December 31. The rate is effective fromMarch through
February of each year. Although it may have changed
during the year, the owner only has to calculate with
the rate in effect at the time the interest is due.
When the Federal Reserve rates were low, the
interest rates for security deposit interest were also
low. Over the last five years the rates for security
deposits ranged from 1.2%to 3.7%. Now that interest
rates have risen, the amount property owners must
pay their tenants has also risen.
The property owner must pay simple interest on
all security deposits or other tenantmoney held by the
owner for at least one year. A property owner may
invest the deposit and does not have to set up a trust
fund for the money held. The property owner may
deduct from the amount of interest due the tenant
50% of the rent board fee. Currently that fee is $22
per unit; therefore, the owner may reduce the interest
payment by $11 per unit.
The property owner is not required to pay interest
if the rent is assisted or subsidized by any government
unit, agency, or authority. Also, if a tenant leaves
during the first year of tenancy, no interest is due.
Interest begins to accrue on the date the
property owner receives the security deposit, and continues
to accrue until the tenancy terminates.
Payment is to be made annually on the date when the
property owner has held the security deposit for one
year. The tenant shall be given the accrued interest in
the form of either a direct payment or a credit against
the tenant’s rent. The property owner may choose
between these two methods of payment. Upon termination
of tenancy, a tenant is entitled to a pro-rata
payment of any unpaid accrued interest no later than
two weeks after vacating the premises.
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