Chapter 21.02

(Tenant’s Interest on Security Deposit Residential Rental Property)


21.02.010    Definitions.

21.02.020    Application of chapter.

21.02.030    Accrual of tenant’s interest.

21.02.040    Payment of tenants’ interest.

21.02.050    Holding and transfer of tenant’s interest.

21.02.060    Investment of security deposit.

21.02.070    Notice to tenants.

21.02.080    Landlord’s use of tenant’s interest.

21.02.090    Remedies.

21.02.100    Waiver.

21.02.010 DEFINITIONS.

As used in this chapter, certain words and phrases are defined as follows:

A.    “Security deposit” shall mean, as provided in Section 1950.5 of the California Civil Code, any payment, fee or charge including, but not limited to, an advance payment of rent used, or to be used, for any purpose, including, but not limited to, any of the following:

1.    The compensation of a landlord for a tenant’s default in payment of rent;

2.    The repair of damages to the premises, exclusive of ordinary wear and tear, caused by the tenant or by a guest or licensee of the tenant;

3.    The cleaning of the premises upon termination of the tenancy;

4.    To remedy future defaults by the tenant and any obligation under the rental agreement to restore, replace, or return personal property or appurtenances, exclusive of ordinary wear and tear, if the security deposit is authorized to be applied thereto by the rental agreement.

B.    “Tenant’s interest” shall mean an amount of simple interest per year on all security deposits in excess of fifty dollars paid by a residential tenant to a landlord. The minimum rate of simple interest, earned and payable under this chapter, shall be established from time to time by resolution of the city council based on the recommendation of the Santa Cruz County treasurer-tax collector as follows: The Santa Cruz County treasurer-tax collector shall contact a minimum of three major banking or savings and loan institutions in November of each year to determine the average interest rate that currently is being paid on savings passbook accounts. The treasurer-tax collector shall compute the average of these rates as the recommended interest rate to be paid on security deposits in the following calendar year. The recommendation shall be forwarded to the city manager. On or before the last city council meeting of the calendar year, the city manager shall transmit to the city council a proposed resolution for adoption specifying the recommended interest rate. A rental agreement may provide for a tenant’s interest at a percentage rate greater than that established by the city council resolution then in effect; however, under no circumstances shall a rental agreement provide for a tenant’s interest at a percentage rate less than that established by the city council resolution then in effect. Unless a rental agreement provides for a tenant’s interest at a percentage rate greater than that established by the city council resolution then in effect, the tenant’s security deposit shall bear interest at that percentage rate established by the city council resolution.

(Ord. 97-16 § 2 (part), 1997).


This chapter shall apply to any rental agreement, written or oral, which is subject to the provisions of Section 1950.5 of the California Civil Code, i.e., a rental agreement for property used as the dwelling of the tenant for thirty days or more; provided, however, that this chapter shall not apply where the rent is assisted or subsidized by any governmental unit, agency or authority, to the extent regulations of such government unit, agency or authority conflict with this chapter; nor shall this chapter apply to units for which landlords are required by law to hold security deposits in noninterest-bearing accounts; nor shall it apply to public housing owned by the Santa Cruz housing authority.

(Ord. 97-16 § 2 (part), 1997).


Tenant’s interest shall begin accruing on December 1, 1984, or on whatever date the security deposit is actually received by the landlord thereafter.

(Ord. 97-16 § 2 (part), 1997).


A tenant shall be entitled to payment of tenant’s interest as provided in Civil Code Section 1950.5, at the earlier of the following:

A.    Subject to subsection B below, upon termination of tenancy, a tenant shall be entitled to a direct payment of the tenant’s interest then remaining due and owing no later than twenty-one days after the tenant has vacated the premises.

B.    At the end of the next February occurring after accrued interest reaches fifty dollars, the landlord shall, without demand, pay the tenant the accrued interest in the form of either a draft payment or a credit against the tenant’s rent. The landlord shall choose between the two methods of payment.

C.    Landlord’s Failure to Pay Annual Interest. Should the landlord, as required in subsections (A) and (B), fail to disburse interest to the tenant or credit the tenant’s rent, the tenant’s interest shall, on a daily basis, accrue on the sum of the principal amount of the security deposit held by the landlord, plus the amount of any previous interest earned but not disbursed or credited.

(Ord. 2013-02 § 1, 2013: Ord. 97-16 § 2 (part), 1997).


The holding of a tenant’s interest on security deposits and the transfer of such interest on security deposits by a landlord to a successor-in-interest shall be subject to the same restrictions and procedures applicable to the principal amount of the security deposit pursuant to Section 1950.5 of the California Civil Code.

(Ord. 97-16 § 2 (part), 1997).


Nothing in this chapter shall preclude a landlord from exercising his or her discretion in investing security deposits.

(Ord. 97-16 § 2 (part), 1997).


Each landlord who is subject to the provisions of this chapter shall provide a copy of this chapter to their tenant at the time of entering into a rent or lease agreement with the tenant. As an alternative to providing this chapter to their tenant, the landlord can include a summary of this chapter as part of the rent or lease agreement. For either notification method, the landlord shall provide the notification to their tenant in the same language the rent or lease agreement was executed with the tenant. Either notification method shall generally apprise the tenant of the tenant’s right to receive interest on his or her security deposit in accordance with Section 21.02.040, shall apprise the tenant of the rate of interest to be earned on that security deposit, and shall apprise the tenant of the landlord’s potential liability for statutory damages for failure to comply with any provision of this chapter and for additional liability under California Civil Code Section 1950.5 for the malicious retention of the security deposit. This section shall only apply to rent or lease agreements with the tenant that are executed after March 12, 2013.

(Ord. 2013-02 § 2, 2013: Ord. 97-16 § 2 (part), 1997).


Upon termination of the tenancy, a tenant’s accrued interest on any security deposit may be used by the landlord to supplement the tenant’s security deposit if, after the landlord complies with California Civil Code Section 1950.5, the cost of verifiable repairs to the premises exceeds the security deposit. The tenant shall be given an accounting of any amount of the interest on security deposit used by the landlord for repairs of the premises.

(Ord. 97-16 § 2 (part), 1997).

21.02.090 REMEDIES.

The failure of a landlord or successor-in-interest to comply with any provisions of this chapter after a tenant has requested the landlord or successor-in-interest to so comply in writing, shall subject the landlord or successor-in-interest to statutory damages not to exceed two hundred dollars, in addition to any actual damages.

(Ord. 97-16 § 2 (part), 1997).

21.02.100 WAIVER.

Any waiver by a tenant of rights under this chapter shall be void as contrary to public policy.

(Ord. 97-16 § 2 (part), 1997).