Did You Know? Multifamily Property Owners are Required to Pay Interest on Security Deposits (2024-2025 Update)
San Francisco’s Rules and Regulations Regarding Security Deposit Interest
The City of San Francisco requires Landlords to pay interest to renters on their security deposits.
In San Francisco, landlords of multifamily properties shoulder a significant number and variety of obligations. Some are very obvious and well-known, such as rent control, tenants’ rights, and soft-story compliance; other requirements are far more obscure. In this guide, we expose one of those obscure requirements, security deposit interest. We’ll explore its origins, important details, and caveats, offering landlords a clear understanding of how to stay compliant with the city’s requirements.
What is Security Deposit Interest?
Security Deposit Interest is the interest that landlords are required to pay tenants on security deposits for rental units held for more than one year. The purpose was to prevent landlords from profiting from tenants' security deposit funds. It also ensures tenants receive a fair return on their deposit funds. The requirement originated from the San Francisco Rent Ordinance passed in 1979.
What is the Current Security Deposit Interest Rate?
The Security Deposit Interest Rate is determined annually by the San Francisco Rent Board and is based on the Federal Reserve Discount Rate. From March 1, 2024 - February 28, 2025, the interest rate on security deposits due to tenants is 5.2%. The Federal Reserve discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility; it is one of the key interest rates directly set and adjusted by the Federal Reserve.
See the list below for the interest rate owed each year since 1983
September 1, 1983 – August 3, 2002: 5.0%
August 4, 2002 – February 28, 2003: 3.4%
March 1, 2003 – February 29, 2004: 1.2%
March 1, 2004 – February 28, 2005: 1.2%
March 1, 2005 – February 28, 2006: 1.7%
March 1, 2006 – February 28, 2007: 3.7%
March 1, 2007 – February 29, 2008: 5.2%
March 1, 2008 – February 28, 2009: 5.2%
March 1, 2009 – February 28, 2010: 3.1%
March 1, 2010 – February 28, 2011: 0.9%
March 1, 2011 – February 29, 2012: 0.4%
March 1, 2012 – February 28, 2013: 0.4%
March 1, 2013 – February 28, 2014: 0.4%
March 1, 2014 – February 28, 2015: 0.3%
March 1, 2015 – February 29, 2016: 0.1%
March 1, 2016 – February 28, 2017: 0.2%
March 1, 2017 – February 28, 2018: 0.6%
March 1, 2018 – February 28, 2019: 1.2%
March 1, 2019 – February 29, 2020: 2.2%
March 1, 2020 – February 28, 2021: 2.2%
March 1, 2021 – February 28, 2022: 0.6%
March 1, 2022 – February 28, 2023: 0.1%
March 1, 2023 – February 29, 2024: 2.3%
March 1, 2024 – February 28, 2025: 5.2%
When is the Interest Paid Back to Tenants?
Tenants are entitled to receive interest on their security deposits, paid annually on the same day and month the security deposit is received.
What Happens if a Landlord Has Not Paid Interest on Security Deposits?
If a landlord does not pay interest owed on security deposits, tenants can file a complaint with the Rent Board. The landlord may be ordered to pay the owed interest plus a penalty. Tenants can also sue landlords in small claims court for unpaid interest.
What is the Maximum Amount of Security Deposit that can be Collected?
In California, the recently passed AB 12 limits the maximum security deposit for a dwelling unit to one month's rent, regardless of whether the unit is furnished or unfurnished. This contrasts with the previous allowable maximum of two months’ rent for unfurnished units and three months’ rent for furnished units.
If the property owner is a natural person or a limited liability corporation where all members are natural persons AND owns no more than 2 residential rental properties with a total of 4 dwelling units for rent, then the maximum security deposit cannot be more than two months' rent, regardless of whether the unit is furnished or unfurnished.
What are the Exceptions to Paying Interest on Security Deposits?
There are a few exceptions where landlords in San Francisco are not required to pay interest on security deposits to tenants:
Rent-controlled units are not exempt from paying interest on security deposits. However, units receiving government subsidies (such as Section 8) are exempt from this requirement.
Interest payments are only required for security deposits held for more than one year. If a tenancy ends within a year, no interest has to be paid.
Interest does not need to be paid on non-refundable move-in fees or deposits that are not considered part of the security deposit.
Security deposits used for unpaid rent, damages, or other legally allowed uses during tenancy do not further accrue interest.
Sources:
Follow LL CRE on LinkedIn to Receive the News, Listings, and Guides on Commercial Real Estate
LL CRE provides commercial real estate investment services for the San Francisco Bay Area. Are you looking to sell your property? Want to know the value of your assets in today’s market?
Take advantage of our 60+ years of market knowledge and obtain a free broker opinion of value from us.