Legal Question in Business Law in California

Re: lease deposits

This is a tough question, and I will start out by saying that after doing some research I have not found a satisfactory answer for California in my references....perhaps some other attorney will, and if so I will be as interested as you in where the answer is found and what it is!

A threshold question is whether this is a consumer leasing transaction or whether the lessee is a commercial/industrial/mercantile type of user. If the former, interest earned is more likely to inure to the lessee (user), and if the latter, more likely to inure to the lessor (owner).

California has a comprehensive law governing leasing of motor vehicles. Although it mentions security deposits, it is silent as to interest earned on deposits. See Civil Code sections 2985.7 to 2991 at your local law library.

Based on the apparent absence of any specific statutory provision and absence of any case law, I would guess there is no requirement that the interest be paid to the lessee. The terms of the lease agreement itself would control. In the absence of any duty under law or imposed by the lease, the lessee probably can retain the interest earned. In this regard equipment leases to middle-market business lessees frequently provide that the lessor may retain interest earned on security deposits and, in the event of a default, the security deposit itself, but not the interest, will be credited to the amount owed by the defaulting lessee.

I found some comments on this question in a treatise on equipment leasing. Unfortunately, the focus of the treatise is national; state law largely governs; and California isn't discussed in the treatise. In several states, specific provisions of state law would require payment of the interest earned on security deposits in consumer lease situations. As I have indicated, if California has a provision covering the situation, I didn't find it after a somewhat limited survey of materials on hand here.

I will be interested to see what others find.