SR-9-B (41)
- ~
~ -
GtS
:1 AN IC\ lCWq,
f \atty\muni\strpts\mjrn \gdcs&sec
City CouncIl Meeting 1-19-99 Santa Monica, California
TO ~.fayor and City Council
FROM City Staff
SUBJECT Proposal to Consider Adopting Laws Requinng Interest Payments on Residential
Secunty Deposits or Good Cause for Residential Evictions Either By Amending
the Mumcipal Code or Placing a Measure on the Apnl1999 Ballot
INTRODUCTION
At its meeting of January 12, 1999, the City Council requested informattOn about the possibility of
makmg two SIgmficant changes m local law by amendment to either the MUnicipal Code or the City
Charter The two proposed changes are requmng reSidential landlords to pay interest on security
deposits and requiring "good cause" for any residenttal eviction This staff report responds to the
Council's request for mformatlOn
BACKGROUl\1)
As to security depOSits, Califorma Civil Code Section 1950 5 governs residential security deposits
and establishes limits on their amount and use, the procedures for refunds and transfers, and remedies
for violations However, SectIOn 19505 is SIlent on the issue of interest requirements Thus state
statutes neither reqmre interest payments, nor do they expressly prohibit cities from doing so
1
'16
'"J"A tJ \ q \, q l1
.
" -
Likewise, California case law neither imposes an mterest payment requirement nor prohibits cities
from dOing so At least one appellate court has rejected efforts to imply a requirement of charging
interest based upon either the law oftrosts or upon implied contract theory Korens v R W Zukin
Corp, 261 Cal Rptr 137 (1989) As to trust theory, the court said that trust requirements (which
include paying interest) do not apply because the secunty deposit situation IS analogous to a debtor-
credItor situation In reaching its conclusIOn the court relied, In part, upon the legislative history
which shO\.....s that the state legIslature rejected the optIon of requinng mterest on a number of
occaSiOns However, both the Korens decislOn and the deCISIOn in another case, People v
Tannenbaum, 29 Cat Rptr 2d 534 (1994), recogmze the possibihty of local legislation governing
secunty deposlts Indeed, in Tannenbaum the court went so far as to observe that "[t]he statute
itself appears to invite local regulatlon in certain areas" Thus. neither court concluded that cities
are preempted from adopting tocallaws governmg reSIdential security deposits In fact, a number of
California Cities, which have rent control laws, require mterest payments
As to requinng "good cause" for reSidential evictions, there ]S no state statute which explicitly
prohIbits such a local law Moreover, we have not found any reported deciSIOn which establishes that
such a law would VIOlate constitutional or statutory limitations Additionally, rent control laws
including such prohibitions have Withstood faCial challenges on a number of occasions
2
-~~ -
'. --
.
DISCUSSION
The reqUIrement that interest be paid on security deposits could be imposed by ordinance There
would be no legal need to amend the charter Moreover, the preemption analysis would be no
different as between a charter and municipal code provision In either case. the law could be
challenged on grounds of preemption and perhaps other grounds as well The result of such a suit
is uncertain
A law requmng the payment ofmterest on security deposits would be relatively easy to formulate and
draft If the Council deCided to direct staff to prepare an ordmance. the necessary staffwork could
be done and returned to Council as soon as agenda scheduling permitted A ballot measure would
take a little longer
The proposal as to good cause evictions IS a dlfferent matter Formulatmg such a law would require
a number of policy deciSions, mcludmg deCisions as to ,-"hat constitutes "good cause" Moreover.
thorough legal research should be done in advance of drafting such a law in order to insulate it from
legal challenges which might be based either upon the constitutIOnal prohibition against governmental
"takings" or upon one of CalifornIa's relatively recently enacted statutes hmltmg citIes' power to
regulate landlord-tenant relations Of course, staff would endeavor to timely fulfill any Council
request. but this work would require a sigmficant time expenditure
In considering its options. the CounCIl may wish to evaluate the efficacy of a local law requinng
<<good cause" for evictions outSide of the context of rent control It may be that the protections
3
. .
-
afforded by such a requirement would be illusory wIthout price controls because a landlord could
evict any tenant by simply raIsing the rent to a level which the tenant could not pay and then serving
a three day notice to payor quit
At present, the Charter defines good cause for eVIctions from controlled rental units Thus, it might
be advisable, or even necessary, for the good cause rules applicable to other units to also be in the
Charter
RECOtvTh.1E1\TDA TION
Apart from advlsmg that the law does not clearly prohibIt eIther of the proposed options and does
not prohlblt the CouncIl from proceedmg eIther by adopting an ordinance or proposal to amend the
Cay Charter, this office cannot make a recommendation These are questions ofpalicy Therefore,
consistent ,"vnh our role, we can only recommend that m evaluatmg these possibilities, the Council
work to develop a factual record, conslder the evidence and comments presented at the public hearing
or heanngs on these issues, dehberate on the consequences of pursuing particular options and direct
staff to prepare any work necessary to Implement as poltcy declsion
PREP ARED BY 1,1arsha Jones Moutrie, City Attorney
Joseph Lawrence, Assistant City Attorney
Martin Tachikl. Chief Deputy, MunicIpal Law DivistOn
4