Real Estate Law
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I'm Lucy, and I'd be happy to answer your questions today. I'm sorry to hear that this happened
First of all: NO. It's absolutely not legal, if for no other reason than that a landlord isn't permitted to deduct late fees from a security deposit.
But, to help explain why it's not - did your lease say anything about late fees? If so, how much? And are you talking about charging you $125 for every time someone smoked, or for every cigarette left behind? Did the lease say that electric was included?
California law provides that a landlord may only withhold a security deposit for actual damage to the premises or unpaid rent. Cal. Civ. Code, Section 1950.5. The landlord can charge for cleaning costs, but (a) he has to provide receipts and (b) $125 per cigarette is absurd. A landlord may not deduct late fees from a security deposit, even if he is otherwise entitled to them (which is he probably isn’t, but I’ll get to that later).
A landlord who withholds a tenant’s security deposit in bad faith can be sued for a penalty of twice the amount withheld, plus the actual return of the deposit. Not pro-rating work for reasonable wear and tear is considered evidence of bad faith. Charging ridiculous amounts like $125 per cigarette is evidence of bad faith.
He can deduct for the electric bill, if the lease provided that you were supposed to pay for electricity and you never did. But he also is required to show you receipts. Failure to provide receipts is evidence of bad faith (and I promise, the electric company has and is willing to provide these records).
Going back to the late fees - rent needs to be paid in full on the due date, and it is the responsibility of all the tenants to ensure that the rent is paid on time. If the rent is short even a penny, the landlord can technically charge a late fee, so he could charge you all when one person was late. However, first, the lease has to actually provide for a late fee. A late fee can only be charged when it would be difficult for a landlord to know how much he might be damaged by rent being paid late. If he has a mortgage, he can figure out how much he's damaged when your rent is late, because it's based on his daily interest. But on top of that, a late fee has to be reasonable. And a $500 late fee is probably not reasonable. A late fee is invalid if it's so high that it's considered a penalty for not paying rent on time.
One option for people in your situation is to send the landlord a letter, explaining the law and attaching a copy of Civil Code Section 1950.5(g), giving him a chance to refund the money he illegal kept in order to avoid paying three times that much. But you're also able to go straight to court and sue. When deciding whether to do that, look at all the line items to see which, if any, are actually legitimate. You can ask for up to $10,000 in Small Claims Court.