Rent Board Offers New Option for Returning Security Deposit Interest
In August the Berkeley Rent Board approved an additional standard for owners to use in determining the amount of interest due on tenants’ security deposits. Effective with the interest payment due in December 2009, owners will be able to choose between two interest payment options:
1) The current rule applies and will continue to apply to cases where the landlord has not placed the deposit in a financial institution located in the City of Berkeley. In this case, the landlord may use the security deposit for any purpose but must pay the tenant interest at the rate equal to the 12-month average of the average rates of interest offered on six-month CDs published by the Federal Reserve. This rate is currently available on the Berkeley Rent Board’s Web site.
2) A new option for landlords is to place a tenant’s security deposit in an insured account at a Berkeley bank or savings institution by the first business day in November and hold it there for the entire year. In this case, landlords can return interest to the tenant at the rate equal to the 12-month average of the average rates of interest offered on six-month CDs by commercial banks located in Berkeley, provided that the landlord furnishes the tenant and the Rent Board with the identity of the bank account.
This information is to be provided at the time that the interest is returned to the tenant on a form provided by the Rent Board. The Rent Board will obtain the interest rate data from local banks on the first business day of each month and compute the average. The “Berkeley” rate will then be published on the Rent Board’s Web site. Owners wishing to utilize the “Berkeley” rate for the December 2009 interest refund must have placed the tenant’s security deposit in a Berkeley account by November 3, 2008, and keep it there through October 31, 2009.
In both cases, the landlord is to pay the interest to the tenant by January 10 of each year, and the pro-rated balance is due upon move-out.
The new policy has raised a few questions among property owners. Some of the more frequently asked questions are addressed below:
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 became 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: Do I have to put the tenant’s security deposit in six-month CD in Berkeley in order to qualify for the Berkeley rate?
A: Property owners do not have to put the money in a six-month CD. They simply must put the money in any type of insured account in a Berkeley financial institution and hold it there for twelve consecutive months.
Q: Will I qualify for the Berkeley rate if I put the deposit in a bank that has a Berkeley branch?
A: Property owners will qualify for the Berkeley rate only if they deposit the money in the Berkeley branch itself.
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 following December. If, however, 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.
So, 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: Does the landlord have to disclose the bank account number to the tenant when returning interest at the Berkeley rate?
A: No. The Notice of Security Deposit Interest form, which property owners must use in order to qualify for the Berkeley rate, will identify only the bank where the deposit is held, along with the last four digits of the account number.