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SAN FRANCISCO - A group of small-property owners filed suit Monday in San Francisco Superior Court demanding that the city change a 1983 law that requires landlords to pay their tenants 5 percent interest on security deposits. The suit, a proposed class action for owners of up to six rental units, claims the law is an illegal taking because landlords must keep deposits in liquid accounts that the suits claims don't return more than 2 percent annually. Small Property Owners of San Francisco v. City and County of San Francisco, 406692. "To the extent that landlords are required to become banks, the city may have that authority," said San Francisco lawyer Andrew Zacks, who filed the suit on behalf of Small Properties Owners of San Francisco. "But the city does not have the authority to force people to take money out of their own pockets." Deputy City Attorney Andrew Schwartz declined to comment on the complaint. San Francisco law requires landlords to make annual interest payments to tenants based on the security deposit. A landlord, for example, must pay $50 to a tenant who pays a $1,000 deposit or take a $50 charge against one month's rent. Zacks and his clients want the city to index the interest rate to prevailing market rates. Berkeley, Zacks noted, requires landlords to hold security deposits in federally-insured interest-bearing accounts but to pay tenants only the interest the deposit earns. "We don't have a problem with the idea that a landlord has to pay interest. We just want it tied to an amount that can be earned by a landlord," Zacks said. "Larger owners are able to invest in longer-term vehicles. We filed this on behalf of small owners because the law falls directly on their backs." The suit asks that the city repay small-property owners more than $4 million. The action follows a December 2001 decision by the 2nd District Court of Appeal reversing the demurrer granted to the city of Santa Monica in a similar action. In March, the state Supreme Court declined to hear the case and rejected the city's efforts to depublish the 2nd DCA opinion. Action Apartment Association v. Santa Monica Rent Control Board, 94 Cal.App.4th 587. The issue of whether Santa Monica's policy of requiring a 3 percent payment is valid has not been decided. San Francisco's law differs from Berkeley's and Santa Monica's in that it does not regulate a landlord's use of a deposit. Zacks is a controversial figure for his representation of property owners, and his latest lawsuit against the city met with resistance from tenant advocates. Randy Shaw, of the Tenderloin Housing Clinic, suggested landlords might be shooting themselves in the foot. "We think the suit is much ado about nothing," Shaw said. "Most tenants don't even know about the interest payments, and a lot more will claim it once they learn about it." The suit may be mooted by a proposal introduced by Supervisor Aaron Peskin which, according to the supervisor's aide, would peg the interest rate to the 1-year Treasury Bill, or something along those lines. Zacks said such a change is an admission of guilt, but Shaw said it will make the matter go away. "My assumption is that the suit will speed up the city's efforts to pass the new law, but I don't think you'll see a judge give back any money to landlords," he said. "[Zacks] can claim whatever he wants, but it's not going to happen." |
