Renters to Earn Interest : Housing: The City Council will have landlords of rent-controlled units pay 5% on tenants’ security deposits.

The Los Angeles City Council approved a measure Tuesday under which renters will be paid 5% interest on the security deposits they are required to give landlords--interest that could amount to more than $60 million between now and 1995.

At the same time, the council tightened the city’s Rent Stabilization Ordinance to prevent landlords from summarily evicting tenants or imposing large rent increases when a baby, a relative or an additional person moves into an apartment.

The council’s 10-3 vote on interest payments was considered a victory for tenants, who for years have grumbled about the interest they lose on the sizable security deposits they pay landlords.

That measure, expected to take effect in a few weeks, covers only the 470,000 rent-controlled apartment units in the city--not apartments built after 1978, single-family homes or luxury units.

Only those renters who stay in their apartments for at least a year would qualify for interest payments from their landlord. Lump payments will be made every five years--or sooner for tenants who move out.

Councilman Zev Yaroslavsky voiced a concern echoed by several council members that, because of holes in the city’s Rent Stabilization Ordinance, landlords have been allowed to hang onto the interest earned on money that is not theirs.

“When you take somebody’s money and hold it, you pay interest on that,” Yaroslavsky said. “You have to pay the interest because that is the American way. . . . It’s simply what’s right.”

Added Councilman Michael Woo: “The opposition I hear from some apartment-owner groups highlights the fact for me that over the course of our rent control laws, some owners have come to think of this money as their own.”

Under existing law, the security deposit paid to a landlord must be returned in full two weeks after a tenant moves out--unless the apartment needs repairs beyond painting, cleaning and normal wear and tear. That provision remains unchanged under the new measure.

Dan Fowler, a lobbyist for so-called mom-and-pop apartment owners, argued that the interest payments to tenants are a disguised effort to lower rents in Los Angeles.

“I think the rents are low enough,” Fowler said. “Don’t pass these laws.”

Under a rent stabilization law adopted in 1985, landlords may raise the rent each year based upon the regional inflation rate. The allowable rent increase in recent years has ranged from 4% to 5%.

Charles Isham of the Apartment Assn. of Greater Los Angeles opposed the measure, pointing out that interest on typical security deposits--which usually range from $500 to $1,000 in Los Angeles--would amount to only $25 or $50 annually. Isham argued that the interest was not worth the paperwork that would be created to return the money.

But proponents--including several council members--pointed out that a poor person or senior citizen who accumulated such interest over five years could be greatly helped by a reimbursement from the landlord.

“At the end of five years, for a senior citizen (who paid a $500 security deposit), it’s $125 in interest,” Councilman Joel Wachs said. “That’s a lot of money for a senior citizen, $125.”

Wachs estimated that, if a conservative security deposit of $500 is assumed for each of the 470,000 affected apartment units, tenants will accrue $58 million in interest from landlords by 1995. However, city officials said the interest payments are likely to be higher.

The council also voted 12 to 1 to prohibit eviction or rent increases when a household adds one dependent child. The law will cover multiple births such as triplets.

With an eye to the city’s overcrowded conditions, the council also voted to protect tenants from eviction if they add one extra person, whether or not that person is a relative. Under the measure, the landlord will be allowed to raise the rent by 10%, but not evict the tenants, as is currently permitted.

Barbara Zeidman, director of the city’s Rent Stabilization Division, said the landlord must accept any reasonable additional tenant. However, if a proposed tenant has a history of bad credit, past evictions or other problems directly related to renting, a landlord will still be able to refuse.

“This recognizes that even with rent control, people are not able to pay rent and are having to bring in a roommate,” said Larry Gross, director of the Coalition for Economic Survival.