San Francisco Apartment Association
SFAA Magazine Archives

September 2003

Feature

Update on Security Deposit Interest

by Jeffery P. Woo

Author’s note: In the April 2003 edition of theSan Francisco Apartment Magazine, Stephen Sherman and I wrote an article explaining that a revision to the San Francisco Administrative Code had changed the method for calculating interest on security deposits. Where previously the rate had been a straight five percent (5%), the rate is now determined annually by the Rent Board every March 1. In our article, we explained that for 2002-2003 period, a two-period calculation of the interest due would have to be performed.It should be noted that there were mathematical errors in the charts.

Effective June 15, 2003, this ordinance was again amended to state that interest was to be calculated by the interest rate in effect either (i) at the time the annual interest payment is due or (ii) if the tenant is vacating the premises, at the time the tenant vacates. The amendment sought to clarify that as of June 15, only one rate would be used to calculate the interest due, even if the one-year period upon which interest was accruing fell over two periods with different interest rates.

This would seem simple enough, but on the Rent Board’s Web site, it states “It should be noted that any interest due a tenant prior to June 15, 2003, will have to be calculated using applicable rates.” The Rent Board takes the position that for any interest payment paid after March 1, but prior to June 15, all three interest periods must now be accounted for. As such, Example 1, which has the interest being paid before March 1, 2003, would not change. But the example of interest being paid after March 1, but before June 15, would change as shown in Example 2.

While there is no support in the language of the amended Ordinance to support the Rent Board’s method of calculation of interest, the monetary difference is too small to argue the point and all landlords are recommended to follow this approach. Fortunately, once you have made the calculation for the 2002-03 period, the calculation for future years will be a straight forward simple interest calculation using one interest rate over the prior 12 months.

EXAMPLE 1
Interest Owed before March 1, 2003:
For example, if a tenant had a security deposit of $1,000 and the last interest payment was made on February 1, 2002, the calculation for the 2003 interest payment would be:

February 1, 2002 to
July 31, 2002
$1,000 x 5% x 6/12 mo.
$25.00
August 1, 2002 to
August 3, 2002
$1,000 x 5% x 1/12 mo. x 3/31 days
$0.40
August 4, 2002 to
August 31, 2002
$1,000 x 3.4% x 1/12 mo. x 28/31 days
$2.56
Sept. 1, 2002 to
Jan. 31, 2003
$1,000 x 3.4% x 5/12 months
$14.17
Total
$42.13

EXAMPLE 2
Interest Owed Between March 1, and June 14, 2003:
If the last interest payment was made on May 1, 2002, the calculation for the 2003 interest payment would be:

May 1, 2002 to
July 31, 2002
($1,000 x 5% x 3/12 months)
$12.50
August 1, 2002 to
August 3, 2002
($1,000 x 5% x 1/12 mo. x 3/31 days)
$0.40
August 4, 2002 to
August 31, 2002
($1,000 x 3.4% x 1/12 mo. x 28/31 days)
$2.56
Sept. 1, 2002 to
February 28, 2003
($1,000 x 3.4% x 6/12 months)
$17.00
March 1, 2003 to
April 30, 2003
($1,000 x 1.2% x 2/12 months)
$2.00
Total
$34.46

EXAMPLE 3
Interest Owed On June 15, 2003 or thereafter:
If the last interest payment was made on September 1, 2002, the current 1.2% rate would be used. The calculation for the 2003 interest payment would be:

Sept. 1, 2002 to August 31, 2003 ($1,000 x 1.2%)
$12.00
Total:
$12.00

Mathematics 101
Deposit: $1,000 / Interest: 1.2%

Yearly Interest: $1,000 x 1.2% = $1,000 x .012 = $12.00
Monthly Interest: $1,000 x 1.2% x 1/12 mo. =
($1,000 x .012) ÷ 12 = $1.00
Daily Interest
(31-day Month):
$1,000 x 1.2% x 1/12 mo. x 1/31 days = ($1,000 x .012) ÷ 12) ÷ 31 = $0.03

Security Deposit Interest History
Sept. 1, 1983 - Aug. 3, 2002: 5.0%
Aug. 4, 2002 - Feb. 28, 2003: 3.4%
March 1, 2003 - Feb. 29, 2004: 1.2%

The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the San Francisco Apartment Magazine. Theinformation within this article is general in nature. Consult the adviceofanattorneyforanyspeciÞcproblem. Jeffery P. Woo is the principal of Woo & Associates and can be reached at woo@mypropertyrights.com. He is also available at 415-705-6470.


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