Pasadena Security Deposit law (2023)
This blog post was created October 30, 2023 and includes a number of details that are changing due to California law changes and the upcoming costs related to the Pasadena Rental Housing Board rules created after passage of Measure H in 2022. Please make certain that you are following up to date rules and do not rely on this website for legal advice.
Edited in October 2024 to include new chart of interest amounts for 2025 and quick guidance to property managers/owners.
Quick guide table for interest rates due on security deposits in Pasadena, CA
(updated interest rate chart in October 2024)
By January 31, 2025 and every year moving forward, you are required to provide a rent credit or direct payment to the tenant of every rental in Pasadena the interest on their held security deposits in the amount determined by the Rental Housing Board. Note that they are absolutely using tricks to make this as high as they can.
As a broker and property manager in California, one of the most important things I learned is that the majority of disputes between landlords and tenants are a result of security deposit disagreements. Maintaining a simple and reasonable procedure for security deposits will help you avoid problems and also follow the rules of the city and state.
Rental security deposits in Pasadena generally must follow the laws of the State where the common practice is that an unfurnished rental property may request no more than 2 months of rent as a deposit. A caveat for this rule is if the property is offered fully furnished. In that specific case, a deposit of up to 3 month’s rent may be requested and held. Many owners request additional charges or fees for things like pet deposits, remote control deposits, etc. but the total deposit, inclusive of these fees is capped by the state. From my experience renting apartments and homes for the past 2 decades, the general expectation from tenants is to be charged no more than 1 month’s equivalent rent. Properties advertised with higher security deposits typically have reasons that boil down to a fear of damages that cannot be covered.
The Judicial Branch of the State of California maintains an excellent guide to security deposit rules at this website: https://selfhelp.courts.ca.gov/guide-security-deposits-california
Currently, in 2023, there are no obligations for payment of interest on security deposits held by landlords but this rule will change in 2024 as a result of the board resolution #11 from September 2023 linked here: https://www.cityofpasadena.net/commissions/wp-content/uploads/sites/31/PRHB-Resolution-RHB-2023-11.pdf?v=1698370289908
New rules coming in 2024:
Starting in January 2024, Pasadena landlords are obligated to pay interest at the annual rate of .41%. This amount was determined by the RHB in late September 2023 after a review completed by bhyv consulting of banks that are FDIC insured and have at least one branch location in Pasadena. The Measure H rules dictate that the RHB use the average of interest rates paid as of October of the prior year from ‘at least 5 banks’. bhyv consulting and the RHB ad-hoc committee interpreted that as the 5 highest rates and recommended, via Karen Tiedmann from Goldfard Limpan Attorneys the rate of .64%. Alternate Tenant RHB member Aaron Markowitz described how the RHB ad-hoc group decided to use the 5 highest rates to make this fee as high as possible. The link to their presentation is available here. Video of the meeting starts at the 2:15:00 mark of the meeting at this link. At the meeting on 27 September 2023, several people pointed out that a relatively unknown bank called First Foundation Bank was offering a far greater than average interest of 2.75% compared to every other bank. In addition, I pointed out in public comments that the California Department of Real Estate prohibits property management companies from earning interest on trust fund deposits and how this essentially is a new tax imposed on property owners in Pasadena. If your property is managed by a property management company, they are likely prevented from holding funds in an interest bearing account.
After discussion, the board decided to use the combined average of all interest rates and came to the rate of .41% This is higher than every bank offering in the city as of October 2, 2022 with the exception of First Foundation.*
Resolution #11 was passed on September 27, 2023 and the image below is a screen capture.
The presentation from Agnes Cho (bhyv consulting) and the board discussion is available at this link at the 2:15 mark https://pasadena.granicus.com/player/clip/6945?view_id=35&redirect=true&h=50849057f686e8e2ce487f91a106539f
Note the dramatic increase at the highest rate. The Pasadena Rental Housing Board has required property owners pay more than
*after learning about First Foundation Bank, I opened a checking account. Their checking account pays 0% interest as of October 2023.
