Pasadena Rental Board Moves to Eliminate Tenant Escrow Requirement

The Pasadena Rental Housing Board on Thursday signaled overwhelming support for eliminating a requirement that tenants deposit withheld rent into an escrow account, a provision that city staff said has proven impractical and costly to implement.

By an 8-to-1 straw poll, the board directed staff to draft amendments that would remove the escrow rule from its regulations. The move came after the Rent Stabilization Department reported that a search for a financial partner had yielded only one institution willing to provide the service, at a steep cost of $500 for the 60-day holding period.

The escrow requirement was intended to provide a neutral holding place for rent payments in the rare event a tenant is authorized to withhold rent from a landlord who has willfully failed to register their property with the city. The idea was to protect the tenant from accusations of non-payment while ensuring the funds would be available for disbursement once the compliance issue was resolved.

However, the reality of implementing the rule proved difficult.

“Staff has made good faith attempts to find a financial institution that would be willing to provide these escrow account services and unfortunately we were unable to find one that was willing to provide these services for a reasonable fee that would not be unduly burdensome to any party,” Senior Hearing Officer Stacey Haro told the board.

The city’s own Finance Department does not currently offer such services and would need “extensive staff time and resources” to develop the necessary procedures, Harrow added.

The provision has also been largely theoretical. To date, the board has not held a single hearing on a petition for rent withholding. Only eight such petitions have been filed; five were rejected because the landlords had already registered, and the other three were incomplete and never refiled.

Board members argued that the escrow account was an “unnecessary and costly intermediary.”

The proposed alternative would require tenants who are granted the right to withhold rent to hold the funds themselves, with a clear understanding that they may be required to pay back a portion to the landlord once the property is registered.

“I’m persuaded that the escrow account is an unnecessary and costly intermediary,” said Board Member Ryan Bell. “My prediction… is that we will have, in the lifetime of this program, zero hearing officer orders to withhold rent because either the tenant will be too fearful to withhold their rent or the simple act of filing the petition gets the landlord to register their units.”

Staff will now return at a future meeting with formal language to amend the regulation based on the board’s direction.