Law Bars Nonrefundable Security Deposit

QUESTION: I moved into a two-bedroom Rancho Palos Verdes apartment in 1984. The rent was $850 a month and the security deposit was $600.

In 1988 I moved into a one-bedroom apartment in the same building because I could no longer afford the rent, which had escalated to $1,100 on my two-bedroom apartment. At that time, however, deposits were only $350 for one-bedroom units and $450 for two-bedrooms.

When I moved, the manager deducted $160 from the $600 deposit, leaving my deposit at $440. Eighteen months later, the management allowed me to deduct $90 from my rent to reduce my deposit to the required one-bedroom level of $350.

In November, 1991, when my economic circumstances improved, I moved back into a two-bedroom apartment in this same building. This time they left my security deposit at $350, but they charged me a $300 “Non-Refundable Transfer Fee.”

I told the manager that I had a cleaning service coming to thoroughly clean the unit, including windows and carpet shampooing. I also offered to bring my security deposit up from $350 to $450.

My offers were declined.

The manager told me that the owners’ policy is to charge $160 for all vacated apartments, whether they are one- or two-bedroom units. I have moved into the unit and paid the rent and $300 transfer fee. However, because I think the owners’ policy is illegal I have not signed the rental agreement.

Is this fee legal? What are my rights?

ANSWER: California Civil Code 1950.5 was specifically designed by the state Legislature for situations like this one. Section (b) of 1950.5 says, “As used in this section, ‘security’ means any payment, fee, deposit or charge, including, but not limited to, an advance payment of rent, used or to be used for any purpose . . .”

A “transfer” fee, then, according to the Legislature, seems to constitute a security deposit. Section (i) of the legislation says, “No lease or rental agreement shall contain any provision characterizing any security deposit as nonrefundable.”

So, your $300 “Non Refundable Transfer Fee” is very likely a refundable security deposit, regardless of whether you sign an agreement to the contrary. Even if you sign the owners’ agreement, the paragraph regarding the transfer fee probably isn’t binding upon you or the owners because the courts will not uphold any illegal provisions contained within contracts.

Similarly, this owner/management company’s policy “to charge $160 for all vacated apartments” could be challenged by you in court.

You should prevail on that action also, unless they can demonstrate that they spent the money for one of three legitimate purposes as defined by the code--unpaid rent, cleaning or damages above “normal wear and tear.”

While you can bring all of this to their attention now, it may not be the best time to do so. The best time for your small claims court lawsuit may be after you move out of the unit.

Since you have known the managers/owners since 1984, you probably have an idea of how they might react to the kind of news you have for them, which should dictate your timing.

In either case, it is easy to file a small claims court action and the fees are low. I recommend using the marshal, also a small fee, to serve your complaint so there can be no question about proper service. While your claim will not come close to it, at least not yet, you can sue for up to $5,000 in small claims.

Manager Can Deduct Value of Residence

Q: Your Dec. 15, 1991, Apartment Life column contained a question and answer titled “ ‘Free’ Apartment Has Tax Strings Attached.” I have some additional information for your readers.

You were correct in saying that the owners of the property can, for tax purposes, write off the expense of providing the manager with a rent-free apartment.

However, there is another, better remedy available to the tenant for solving this dilemma, rather than moving out of the premises or paying taxes on the value of the apartment.

The value of the lodging, in this case $4,000-$5,000, can also be excluded from the apartment manager’s taxable income provided three conditions are met. They are:

1--Lodging is furnished on the business premises of your employer,

2--It is furnished for the convenience of your employer and

3--It is a condition of your employment.

As an enrolled tax agent I have successfully dealt with this issue in the past. As apartment managers are generally required to be readily available for rendering services, meeting the required conditions presents no problem.

Thus, the owner qualifies for the expense write-off and the manager needn’t claim the value of the apartment as income, representing a rare win-win tax situation. How about letting your readers know the good news?

A: I am delighted to reprint your letter. Thanks a bundle for solving this taxing problem.

Postema is the editor of Apartment Age Magazine, a publication of the Apartment Assn. of Greater Los Angeles (AAGLA), an apartment owners’ service group. Mail your questions on any aspect of Apartment living to Apartment Life, AAGLA, 621 South Westmoreland Avenue, Los Angeles, California 90005-3995.