O.C. landlord once again battling allegations it unfairly kept security deposits
Early last decade, one of Orange County’s largest apartment companies — owned by billionaire political power broker George Argyros — battled allegations that it kept tenant security deposits en masse for unneeded repairs.
To settle the investigation, Arnel Management Co. agreed to pay $1.5 million, a 2001 deal that paved the way for the real estate mogul to become ambassador to Spain, an appointment that had stalled amid the controversy.
But 15 years after the agreement with the California attorney general’s office, some tenants claim that the problems with deposits continue.
The county’s fifth-biggest landlord continues to deduct hundreds of dollars for unneeded cleaning and repairs even when residents leave their units spotless, according to interviews with more than a dozen former tenants, four former employees and allegations contained in small claims lawsuits.
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Arnel, with 18 complexes totaling more than 4,500 units in Orange County, has been sued at least 38 times in Small Claims Court between 2010 and 2015 by tenants who alleged that the company unfairly kept their security deposits.
The largest landlord, Irvine Co., which according to CBRE Group owned at least 32,000 units in Orange County during that period, faced fewer than 10 such lawsuits, a review of court records found.
Arnel declined to comment on specific cases or make any of its executives available for interviews. But in a statement, the company said that it does not make security-deposit deductions a business practice nor does it automatically charge for cleaning and repairs no matter the condition of the apartment.
“The 38 cases,” Arnel said, “represent but a small fraction of the more than 18,000 tenants Arnel has successfully moved in and out of its properties” from 2010 to 2015.
Tenant advocates claim that the Arnel cases may hint at a larger problem at a company that rents to many lower- and middle-income households.
“A lot of people don’t have the resources or take the time to file a case,” said Aimee Inglis, acting executive director of Tenants Together, a statewide renters’ rights organization. “People just don’t bother.”
One who did is Sandy Dulaney, who last August sued Arnel for the return of her $650 deposit.
She said she and her husband left their $1,345-a-month unit at the Villager Apartments in Anaheim in “immaculate” condition, minus a small hole in a door that they had patched up. She said they even rented a steam cleaner to scrub the carpet.
“We went above and beyond the call of duty,” Dulaney said.
But instead of her $650 deposit, she received a bill for $159. “I was in complete shock,” she said.
Others were upset as well.
In a March lawsuit that sought her $650 deposit, Rania Khalil alleged that when she returned to her former unit there was a new tenant, but “invoiced items had not been done.”
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Stephanie Cesareo sued in April of last year, alleging that slightly more than half of her $600 deposit was withheld even though her apartment was professionally cleaned and “pristine” when she left.
In her lawsuit, she alleged that a manager told her Arnel always charges $50 to clean the carpet.
Both tenants settled their cases and received at least some of the money they demanded.
By law, landlords aren’t supposed to use security deposits to repair defects that existed when a tenant moved in, for cleaning a unit that has been returned to the “same level of cleanliness” when a tenant arrived, or for damages caused by “ordinary wear and tear.”
But four former employees said Arnel often charged for cleaning and repairs that weren’t needed. Kyle Gough said he worked in the corporate office for nearly a year where he handled accounting and customer service. The office, he said, took calls daily from irate tenants who believed that Arnel was unfairly withholding their deposits.
Gough estimated that in about a third of the cases that crossed his desk, residents were charged for items they shouldn’t have been, based on photos taken by Arnel workers.
Sometimes, he said, residents were charged more than what Arnel’s vendors billed to make repairs, including instances where residents paid for carpet replacement but only a cleaning was done.
In its statement, Arnel denied charging more than its vendors do.
Gough said he left the company in July after he brought his concerns to his supervisor but no changes were made.
“A significant part of the job was to talk to the residents and talk them down and try to justify where the charges were coming from,” he said.
A property manager who left in 2011, but declined to be identified because he still works in the real estate industry, said he sometimes moved a new tenant into an apartment only to find incomplete repairs for which the maintenance staff charged previous tenants.
“I don’t think it was maliciously done,” he said. “[The maintenance workers] are in such a rush — Arnel is all about rent, rent, rent. We were all under the gun.”
Even so, he believed that maintenance managers were pressured to maximize what they charged tenants after a move-out. Once, he said, an accountant from the corporate office called and asked why more wasn’t done.
“What happened here?” he recalled the accountant saying. “Why are they charged so little for this? Why not charged for this or that?”
Arnel denied having accountants follow up to request further deductions.
Disputes about security deposits are among the most common disagreements between landlords and tenants — most of which center on competing interpretations of “ordinary wear and tear,” advocates for landlords and tenants say.
Debra Carlton, senior vice president for public affairs with the California Apartment Assn., provided the following example: An aging, worn carpet that is no longer pristine white would constitute ordinary wear and tear. But if a tenant spilled grape fruit juice and left a stain, the security deposit could then be used to clean it up.
If a landlord and tenant can’t agree on “ordinary wear and tear,” a small claims judge may decide.
In its 38 cases, Arnel prevailed in two, but in the majority of lawsuits Arnel or an affiliated company either lost or agreed to settle and pay some -- if not all -- of the original security deposit.
Mohammed Ali Qureshi, for example, walked away with $600 after settling a 2012 case – even though Arnel initially agreed to give him just $32 from his $750 deposit, according to a move-out statement.
Others got everything back. Allyson Edge sued for her $650 deposit in 2014 and after mediation Arnel gave the paralegal a $680 check, which included $30 in legal costs.
Even with settlements, landlords who routinely deduct deposits unfairly could come out ahead, Inglis of Tenants Together said.
“It’s a numbers game. Say 15% of tenants push back,” she said. “They still made out with more money than they should have.”
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In the Dulaney case, she and her husband, Ronnie Batin, were dinged for a host of charges including carpet cleaning, painting, general cleaning and the replacement of two doors, a move-out statement shows — deductions that left the couple with no security deposit and a $159 bill.
The 51-year-old fitness instructor did not dispute that she damaged one door. Pictures that Dulaney said were taken by both the couple and Arnel and reviewed by the Los Angeles Times otherwise show a largely clean apartment, except for a few small smudges.
The couple sued in August. The two sides settled two months later and Dulaney, who gave up several days work to fight the case, walked away with $619.
Arnel owner Argyros, the grandson of Greek immigrants, built his fortune in real estate, acquiring and building apartments as well as retail and office properties in Orange County.
Arnel’s website bills the communities as a home with the feel of a “getaway,” pointing to amenities such as pools and barbecues. Online reviews paint another picture of some of the complexes – one in which security deposit and habitability issues are a problem in the communities, composed of older, low-slung units.
The 19 complexes, which stretch from a solo Los Angeles County property in Rowland Heights to Laguna Hills, have helped make Argyros a wealthy man – money he’s used to promote political and cultural causes. His name graces Chapman University’s business school, while a stage at the South Coast Repertory is named for his wife, Julianne. Last year, Forbes estimated that Argyros and his family were worth an estimated $2 billion.
Argyros currently serves as chairman emeritus for Arnel Management, while Julianne is president, according to company spokeswoman Michelle Jordan.
She declined to make either of the Argyroses available for an interview, but the company said in its statement that it takes steps to minimize potential disputes before they happen. Arnel said it notifies tenants that they have a right to both a pre-inspection walk-through within two weeks before move-out, as well as a final inspection.
A former staff member contacted by The Times, Joe Rosenblum, said there weren’t problems when he oversaw the company’s maintenance staff before leaving around 2010.
“It was always discussed how to be as fair as possible. When I left there was always the standpoint of charging according to what the damages were,” Rosenblum said.
Arnel also pointed to a “reader-friendly” lease addendum that defines “ordinary wear and tear” and recommends that tenants attend a move-out inspection, but some tenants said no one showed up for theirs. Others said that although they had a walk-through with maintenance staff, the workers didn’t make it clear that they would be charged.
Although Arnel held up its security deposit addendum as a way to avoid problems, it didn’t put such language on its lease voluntarily – it’s required under its 2001 settlement with the California attorney general.
The state office took over the case after Orange County Dist. Atty. Tony Rackauckas – who had accepted campaign cash from Arnel — was widely criticized for taking a personal role in his office’s investigation.
In sworn declarations related to that case, former Arnel employees wrote that Arnel charged tenants two or three times what its vendors billed and that maintenance supervisors received bonuses tied to move-out charges.
Arnel did not admit wrongdoing but as part of the settlement was required to take steps to conduct move-out inspections and to not compensate employees based on revenue earned from retaining security deposits.
A spokeswoman for the attorney general’s office said she could not comment on whether the office has received any recent complaints against Arnel, but stressed that the 2001 requirements remain in force.
Meanwhile, tenants say they still must battle to secure the money they are owed.
That includes Tatianne Velo and Yasser Giron, who didn’t sue but filed a complaint against Arnel with the Orange County district attorney’s office last year.
When the couple moved out their $1,690-a-month apartment in Tustin, the majority of their $750 security deposit was withheld – even though they said they paid $100 to purchase a carpet-cleaning machine and $125 for maid service.
Photos that Velo’s mother said she took during the move-out show spotless countertops, walls and a freshly cleaned carpet.
But Arnel returned only $356.70 and charged the couple for painting, general cleaning of the apartment, “carpet cleaning/repair” and “counter-tops-kitchen,” according to a move-out statement.
Velo’s mother, Rossana Velo, said an Arnel maintenance worker told her that the apartment was clean during a move-out inspection -- but it didn’t matter.
“They are going to charge the cleaning anyway,” she recalled him saying. “I tell every person I know when they ask me ‘Don’t clean, because they are going to charge anyway.’ ”
In September, Giron and Velo heard back from the Orange County district attorney’s office.
A paralegal told Tatianne Velo in a letter that the district attorney brings lawsuits when “the interests of the public at large are involved.” She said the office cannot “represent individuals in civil matters [or] take action in order to obtain money owed to a consumer.”
Instead, the letter recommended that Velo try Small Claims Court.
Follow me @khouriandrew on Twitter
Times researcher Scott Wilson contributed to this report.
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