City Landlords Given Alternative For Investing Security Deposits

Berkeley landlords will be able to get a lower rate of return on tenants' security deposits now that Berkeley's Rent Stabilization Board has started a new program encouraging them to place the deposits in Berkeley banks.

The board requires that landlords pay tenants interest on their security deposit to account for inflation.

Property owners have said for years that the required rate of return on security deposits, 3.4 percent in 2008, is virtually impossible to find in investments that meet their needs. They were then unable to invest the money and were forced to pay the tenants' interest with revenue.

In response, the rent board offered an alternative option, announced Nov. 3, allowing landlords to use a slightly lower rate if they keep the money in Berkeley banks for at least a year.

"If you put it in a Berkeley bank and leave it in a Berkeley bank, you can get what everybody thinks is a lower rate," said Jay Kelekian, executive director of the board.

But Sam Sorokin, owner of Premium Properties and board member of the Berkeley Property Owners Association, said the new option is still unfair for property owners.

According to Sorokin, the required interest rate is too high and still based on a six-month deposit. Most landlords need the money to be more frequently accessible because a tenant can leave with only a 30-day notice.

"An owner can't commit to those rates because you're on that month-to-month rent basis-the current system is not fair, the prior system is not fair," Sorokin said.

But Kelekian said the rent board was somewhat limited by a measure passed by Berkeley voters in 2004 requiring landlords to use the federal six-month savings deposit interest rate. The new investment option amends that measure.

The alternative will also add an incentive to invest and support local banks, said Jesse Arreguin, chair of the board and future Berkeley City Council member.

"It will help Berkeley banks, it will create an incentive to invest in local banks," Arreguin said.

But landlords said the program's added paperwork may be too burdensome for the marginal benefit gained from the lower "Berkeley rate."

"I'm more opposed to the process of hassle in forms and bank account numbers," he said. "I'll just pay this interest."

Tags: SECURITY DEPOSIT