How Much of a Security Deposit Can You Keep?

If you’re a property owner who leases to others, you will typically charge new tenants an upfront security deposit. Security deposits protect landlords against loss, most often in the form of unpaid rent and damage to the property.

If you’re a rental owner in Santa Clara County, where rents are high and the property is expensive, the protection provided by a security deposit can be extra-important. However, security deposits are not free money for owners of rental property. Valley Management Group, a San Jose property management company, tells clients it is important to know and follow all the rules when it comes to handling security deposits.

California law is very specific about what expenses an owner can deduct from a tenant’s security deposit. There are four types of legally deducted expenses:

1. Unpaid rent – A tenant cannot stop paying rent that’s due, then expect a full refund of their security deposit upon moving out. A property management company could, in fact, keep the entire security deposit if it was equal to or less than rent still due.
2. Cleaning the unit – A landlord is entitled to deduct from the security deposit for cleaning costs when the tenant moves out. The amount deducted depends on the cost required to make the unit as clean as when the tenant moved in.
3. Repair of damage – A portion of the security deposit may also be kept to cover the costs of any necessary repairs that are beyond normal wear and tear. That might include holes in walls, broken windows or damage to any fixtures caused by the tenant or one of their guests.
4. Furniture – If the unit comes furnished, California law allows a part of the security deposit to be held back to restore or replace any furniture that’s been damaged beyond normal wear and tear by a tenant or one of their guests, as long as the provision is made clear in the lease agreement.

Proper procedure for keeping security deposits

By law, tenants are permitted to request an inspection of the unit before they move out. Such an inspection gives them the opportunity to correct any identified problems before being charged for them after moving out.

A good San Jose property management company will walk through the property with the tenant and provide specifics regarding what cleaning, repairing or replacing needs to be done. After the tenant moves out, the property manager would do a final walk-through to ensure everything has been addressed. If the property meets the standards laid out in the initial walk-through, the tenant is entitled to receive the entire security deposit back.

Remember, California law provides for normal wear and tear and requires only that a unit is in the condition it was before a tenant moved in. If the carpets weren’t cleaned before the tenant move-in, for example, they are not required to be cleaned upon move-out.

Handling of any deductions

According to state law, a California landlord has 21 days after the tenant has moved out to either refund the entire security deposit or provide the tenant with an itemized list of deductions and the balance of the deposit after those deductions.

As long as the tenant has not waived their right to them, the landlord or property management company must also furnish copies of invoices for charges over $126. In other words, if the carpet did need professional cleaning, and it cost more than $126, the tenant is entitled to a copy of the receipt for that cleaning.

If the charges are less than $126 or the tenant (in the lease agreement) has waived their rights to copies of invoices, the landlord still must provide an itemized list of any charges and do so within that 21-day period.

Security deposits protect landlords against financial loss, but there are only certain items for which deductions are legal, and there are procedures in place for handling them. An experienced property management company will know and follow all the rules and procedures.

Valley Management Group has over 35 years of experience providing property management services in San Jose and throughout Santa Clara Valley. They provide trustworthy and affordable property management services and have many high reviews from property owners as well as tenants. If you have a rental property in San Jose or within Santa Clara County, call 408 286-4200 for a free property management quote with one free month of services.

Reviewed and Approved by Lloyd Kipp
Property Manager and Owner of Valley Management Group