Landlord-City Feud Erupts Over Law on Security Deposits

New city ordinances designed to ease financial burdens on low-income renters have touched off a political donnybrook that is pitting a local landlord coalition against Los Angeles city officials in a fight for the rightful claim to apartment security deposits.

Arguing that the money belongs to tenants, rent regulators and City Council members leveled sharp criticism Friday at the Apartment Assn. of Greater Los Angeles for suing the city in Los Angeles Superior Court to overturn a law requiring that owners of rent-controlled apartments pay tenants 5% interest on security deposits.

The group, which says the law is biased and financially injurious, also filed a second suit seeking to challenge a companion ordinance that bars landlords from raising rent by more than 10% when adult tenants move into occupied rent-controlled units. Under the same ordinance, landlords cannot increase rent at all if the new tenant is a newborn.

The suits seek to stop enforcement of the ordinances, which took effect earlier this month.

According to the security deposit ordinance, a landlord must begin paying interest on the security deposit a year after the tenant moves into the unit. The security-deposit ordinance affects only the 480,000 housing units subject to rent-control law. Thus, about 40% of the rental units in Los Angeles are unaffected by the measures.

City officials, annoyed about the suit, dismissed the litigation as unfounded and threatened to impose even tougher measures on apartment owners.

“The suit is nonsense,” said City Councilman Zev Yaroslavsky, who represents the 5th District on the Westside. “(The landlords) have no clue about what a tenant in this city is faced with in terms of finding affordable housing.”

Yaroslavsky said the landlords’ resistance to the ordinances showed their callousness toward the plight of their tenants, many of whom can only afford apartment units under rent-control law.

“If they insist on pursuing this line of attack against landlord-tenant law, perhaps the next solution will be to simply prohibit security deposits of any type,” said Yaroslavsky, who supported the controversial measures when the City Council approved them last October. “I think this will have a more deleterious effect on the landlord, and it might have a more positive effect on the creation of affordable housing.

“I’m ready to consider it. Perhaps it should be looked at.”

But association attorney Trevor Grimm argued that the city cannot force apartment owners to pay the interest because security deposits, the money tenants give landlords before moving into apartment units, do not belong to tenants.

“If it were their money, they could spend it, invest it, but they can’t,” said Grimm. “It’s got a hook in it. It is an escrow account. It is meant to compensate the landlord for damage to the apartment, unpaid rent or the cost of cleaning the apartment. It loses its character as the tenants’ money.”

Any attempt to prohibit security deposits would violate state law, Grimm said, including the current interest-payment ordinance.

But city officials insisted that they do have the right to impose the interest payments. Furthermore, they said, the money indeed belongs to the tenants, that landlords can lay claim to security deposits only as recompense.

“It gets down to the old story: a bank, when it takes your money, pays you interest; a stock pays dividends,” said Yaroslavsky. “Why shouldn’t a landlord be required to pay you interest on your money?”

While other city officials expressed skepticism about a wholesale ban on security deposits, they agreed that the landlords’ arguments were baseless.

“I don’t think it will stand up in court,” said Michael Bodaken, housing coordinator for Mayor Tom Bradley’s office. “I think that this law is a legitimate attempt by the city to prevent rent gouging.”

He and other officials pointed out that other major urban centers, most notably New York City and Chicago, have similar measures.

Grimm complained that the ordinance discriminates against the owners of rent-controlled units.

“It segregates owners of rent-controlled units, whereas owners of other units don’t have to pay,” said Grimm.

City rent regulators said the dispute illustrates a constant war between landlords and tenants.

“This is a classic example,” said Barbara Zeidman, director of rent stabilization for the city. “In rent control, there is very rarely an argument of who’s right and who’s wrong. It’s a matter of competing rights.”