Major Changes to Security Deposit Interest Coming January 1
Significant changes to State and Prince George’s County law will alter the rate of interest payable on residential security deposits effective Jan. 1, 2015. The longstanding interest rates of 3 percent statewide (except in Prince George’s County) and 4 percent in Prince George’s County will drop prospectively to market-based interest rates. Although interest rates will be determined annually, we expect the rate payable after January 1 will likely be at the statutory floor of 1.5 percent.
AOBA worked with allied business groups to enact HB 249 and SB 345 to alter the State law governing interest payable on residential security deposits. Prince George’s County law was changed by the recently-enacted CB-63-2014, sponsored by Councilman Derrick L. Davis (D-6). That legislation altered County law to provide that interest would be payable at the State rate, and also conformed to State law the requirement that tenants be notified within 45 days (rather than 30) if part of the security deposit is to be withheld. Both changes are effective Jan. 1, 2015.
The State Department of Housing and Community Development (DHCD) will post a link on the homepage of their website providing a calculator for the use of rental housing providers and tenants to determine the amount of interest payable on residential security deposits. The calculator will be available by early December in test mode, and starting January 1 live for use prospectively for new leases. State law provides that rental housing providers will be entitled to rely on the calculator when determining the interest on a security deposit.
The new law provides that interest payable on residential security deposits will be determined annually at the U.S. Treasury Yield Curve Rate for one year, as of the first business day of each year, or 1.5 percent, whichever is greater. We will communicate that rate to you as soon as it becomes available, and the rate will also be embedded in the DHCD calculator. If you use canned software that calculates accrued interest, you will need to load in the new rate each January.
If you have not already done so, you should remove references to specific interest rates from your leases. We also urge you to notify your tenants of this change to interest rates that will be accruing in the future.
AOBA anticipates pursuing corrective legislation at the 2015 General Assembly session to resolve ambiguities in the law concerning the accrual of interest and the transition for the effective date of the bill. For further information, contact Ron Wineholt at email@example.com.