NEW LAWS AFFECT RESIDENTIAL RENTAL PROPERTY
HAROLD S. SMALL, J.D., CPA, and AEP
†††† The Legislature was busy in 2002 enacting many changes to the law, including two significant bills that were signed into law by the Governor that will have a substantial impact on owners of residential rental property.† Effective January 1, 2003, rental property owners are required to perform a walk-through of real property with residents no earlier than two weeks prior to the termination of the tenancy.† The intent of the legislation appears to be the desire of the legislature to give tenants the opportunity to cure defects that otherwise will result in a reduction of their security deposit in an effort to permit the return of more security funds to tenants.
†††† Owners of real property are required to give written notice to residents within a reasonable time after notification of the intention of either party to terminate the tenancy, or before the end of a lease term, of (1) the residentís option to request an initial inspection and (2) the residentís right to be present at the inspection.
†††† If a resident requests an initial inspection, the owner (or ownerís agent) is required to make an initial inspection of the leased premises at a reasonable time, but no sooner than two (2) weeks before the end of the tenancy or the end of the lease.† This inspection is in addition to any other inspection the owner may make after the premises are vacated by the resident.† No further action is needed on the part of the owner if a resident does not request an initial inspection.† However, if an inspection is requested, the owner (or his agent) and the residents shall attempt to schedule the inspection at a mutually acceptable time and date.† When a mutually agreed upon time and date have been reached, the owner is required to give at least 48 hours prior written notice to the resident of the time and date of the inspection.† However, if the parties are unable to reach an agreement for the time and date of the inspection, the owner must give at least 48 hours written notice to the resident of the date and time when the inspection will occur.† There is no requirement that the resident be present during the inspection.† Also, the owner and resident may agree to waive the 48 hour written notice by both signing a waiver.† The owner shall proceed with the inspection regardless of whether the resident is present or not, unless the resident has withdrawn his or her request for the inspection.
†††† Once the inspection has been completed, the owner shall give the resident an itemized statement specifying the cleaning and repairs that are proposed to be the basis of any legally permissible deduction/charge against the security deposit.† The itemized statement is required to include the actual text of certain sections of the California Security Deposit Law.† When the resident is present for the inspection, the statement must be given to the resident.† If the resident is not present, then the owner is required to leave the statement inside the premises.† The resident then has the opportunity following the initial inspection through the termination of the tenancy to remedy in a manner consistent with the rental agreement/lease the identified deficiencies in order to avoid any deductions or charge against the security deposit.† If the resident does not correct the deficiencies, the owner has the right to use the security deposit for deductions that were itemized in the statement that have not been corrected by the resident, so long as the deductions are allowed by law.
†††† The owner is allowed (pursuant to agreement and/or California statute) to use the security deposit for the payment of rent in the event of a default by the resident, the repair of damages to the rented residential property caused by the resident or the residentís guests, exclusive of ordinary wear and tear, cleaning of the residential unit in order to bring it to the same level of cleanliness as it was at the inception of the tenancy, the failure of the resident to restore, replace, or return personal property or appurtenances, damage to the rental property that occurred between the completion of the initial inspection and termination of the tenancy, and damage to the rental unit that was not identified by the owner during the initial inspection due to residentís possessions being present within the unit.
†††† The bad faith retention of security funds by an owner, or any portion thereof, may subject the owner to damages allowed by statute equal to up to twice the amount of the security deposit, in addition to the actual damages suffered by the resident.† Other adverse consequences may result for owners that fail to act in accordance with the new statutory requirements.
†††† Rental property owners should consult with counsel regarding notices that must now be given and the actions that must be taken to minimize exposure to tenants for failure to properly inspect and refund security deposits.
CONCEPTS AND IDEAS ARE GENERAL STATEMENTS AND ARE INTENDED TO PROVIDE CONCEPTS
FOR CONSIDERATION IN BUSINESS AND TAX PLANNING.†
CAREFUL CONSIDERATION NEEDS TO BE GIVEN BY THE USER REGARDING THE USE
AND APPLICATION OF THE CONCEPTS.† YOUR LEGAL AND TAX COUNSEL SHOULD BE CONSULTED BEFORE THE
IMPLEMENTATION OF ANY OF THE IDEAS INDICATED HEREIN.† SHOULD YOU HAVE QUESTIONS REGARDING THIS
MATTER, HAROLD S. SMALL, ESQ., CAN BE REACHED AT
Copyright Harold S. Small 2007. All rights reserved.