California Tenant Letter of Credit in Lieu of a Security Deposit

State:
Multi-State
Control #:
US-OL4A023
Format:
Word; 
PDF
Instant download

Description

This office lease form is a tenant's letter of credit to the owner in the place of a security deposit. The letter of credit maintains effect at all times during the term of the lease following delivery thereof. A clean, unconditional and irrevocable letter of credit shall have an expiration date no earlier than the first anniversary of the date of issuance and shall provide that it shall be automatically renewed from year to year unless terminated by a bank by notice to the owner. The final expiration date of the letter of credit (including any renewals) shall be no earlier than sixty days after expiration date of lease.

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FAQ

The Tenant Protection Act caps rent increases for most tenants in California. Landlords cannot raise rent more than 10% total or 5% plus the percentage change in the cost of living ? whichever is lower ? over a 12-month period.

Newsom signed AB 12 into law on Wednesday. Beginning July 2024, your security deposit cannot exceed one month's rent, regardless if the unit is furnished or not. Small-scale landlords who own no more than two properties and a total of four units can request up to two months' rent under the new law.

In California, ?normal wear and tear? refers to the inevitable physical deterioration that happens over time with regular use of a rental property, even with tenants who are careful and responsible.

For a non-furnished residence, a landlord cannot charge more than twice the rent, plus the first month's rent, as a deposit. For a furnished residence, landlords can charge up to three times the rent in addition to the first month's rent. Civil Code §1950.5(c).

One of the primary benefits of using a letter of credit as opposed to a cash security deposit is that a letter of credit allows the commercial tenant to retain money in their account. They are extremely popular with Landlords since they are backed by a major bank.

In many cases, a letter of credit is better for both parties since it frees up cash resources for the tenant while providing the landlord with potentially more protection in the event of a default or bankruptcy.

Landlords routinely accept a security deposit in the form of a letter of credit in lieu of cash upon execution of a lease agreement as security for the performance by a tenant of all obligations on the part of such tenant thereunder.

Gov. Gavin Newsom signed Assembly Bill 12 into law, which states that security deposits can't be any larger than one month's rent, on Oct. 11. The law is slated to take effect on July 1, 2024.

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California Tenant Letter of Credit in Lieu of a Security Deposit