UPDATED: This article has been revised to reflect California AB 12, effective July 1, 2024, which changed security deposit limits for most landlords.
Believe it or not, one of the most common legal disputes between rental unit owners and tenants occurs over security deposits. There are attorneys who specialize in such cases, and there are even non-profit organizations that champion tenants’ causes over security deposits.
If you’re a rental unit owner, the easiest way to stay out of court is to fully understand and follow the law. That’s not to say, however, that you don’t also have rights. Here’s what rental owners need to know about tenant security deposits.
What Constitutes a Security Deposit?
A security deposit is an amount a rental owner or property manager collects from a tenant before the tenant moves in. It may be called a cleaning charge, pet deposit, move-in fee, or something else, but under California law, upfront payments a tenant makes that aren’t rent are considered security deposits.
Who Governs Security Deposits?
Many county and local governments have their own laws and codes governing rental properties. For example, a San Jose property manager must follow all city regulations for rentals. But security deposits do not fall under that oversight.
Instead, state law governs security deposits, specifically Section 1950.5 of the California Civil Code. In 2023, the California Legislature passed AB 12, which Governor Newsom signed into law on October 11, 2023. AB 12 significantly amended Civil Code §1950.5 and took effect on July 1, 2024.
How Much Can Be Charged? (Updated Under AB 12)
Effective July 1, 2024, AB 12 reduced the maximum allowable security deposit for most California landlords to one month’s rent, regardless of whether the unit is furnished or unfurnished.
A limited exception applies to individual “small landlords” who meet all three of the following criteria:
- The owner is a natural person (not a corporation, LLC, or other entity).
- The owner owns no more than two residential rental properties.
- Those properties contain a combined total of no more than four dwelling units.
Small landlords who qualify under all three criteria may charge up to two months’ rent, whether the unit is furnished or unfurnished. AB 12 removed the previous distinction between furnished and unfurnished units for this exception.
The previous limits, two months’ rent for unfurnished units and three months’ rent for furnished units, no longer apply to the vast majority of California landlords as of July 1, 2024. Property management companies, corporate owners, and individual owners with more than two properties or more than four units must comply with the new one-month cap.
Example: If you’re an individual owner (not an LLC) doing property management in San Jose and you own one unfurnished unit renting for $2,500 per month, you still qualify as a small landlord and may charge up to $5,000 as a security deposit. However, if that same property is owned by an LLC or you own more than four units total, the maximum deposit is $2,500.
What’s the Process?
To protect both the owner and the tenant, it’s important to document the condition of the property before collecting any funds. The owner or property manager should do a room-by-room inspection of the unit with the prospective tenant before move-in. A thorough checklist should be completed and signed by both parties so the property’s condition is documented and agreed upon. It’s also a good idea to take multiple photos of each room to reference later when a tenant moves out.
When the tenant moves out, follow the same procedure. Side-by-side comparisons of inspection checklists and photos can easily highlight any differences in the property’s condition.
What May Be Deducted?
After a final inspection, a property owner may deduct costs when returning the security deposit. Under California law, the owner may withhold deposit funds for unpaid rent; damages beyond normal wear and tear; items missing from the property; and “reasonable” cleaning fees to return a unit to its level of cleanliness before the next tenant moves in.
Normal wear and tear is the natural deterioration of a property’s materials over time. For example, faded or chipped paint on walls or worn carpets and floor coverings are expected over time. However, things like broken windows or holes in walls constitute damage. “Damage” is anything caused by something other than time and regular use. A San Jose property manager would refer to documentation and photos taken before the tenant moved in to determine what could legally be deducted when they move out.
How Long Can a Security Deposit Be Held?
California law requires owners or property managers to notify tenants of their right to a pre-move-out inspection within two weeks of their moving out. At that time, the tenant must receive an itemized statement of potential deductions and an opportunity to remedy them before the move-out date.
Once the tenant has vacated, the rental owner must refund the security deposit within 21 calendar days. If the owner makes any deductions, they must provide the tenant with an itemized written statement of all charges, along with receipts or invoices for any work costing $125 or more, and the remaining deposit balance.
Important penalties for mishandling deposits: If a rental property owner wrongfully withholds all or part of a security deposit, they may be held liable for the actual amount wrongfully withheld, plus up to twice that amount in statutory damages, for a potential total exposure of up to three times the withheld amount, if a court finds the withholding was willful. This risk underscores the importance of proper documentation and timely deposit returns.
The Bottom Line
California’s security deposit rules have changed significantly with the passage of AB 12. Most landlords are now subject to a one-month deposit cap, and the old two- and three-month limits no longer apply except to the smallest individual owners. Staying current on the law is not just good practice; it’s essential to avoiding costly disputes.
By using a professional property management company, rental owners gain more free time, peace of mind, and less stress when dealing with the complexities of rental properties. Valley Management Group is a full-service property management company in San Jose that handles all aspects of managing rentals, including staying current on changes to California law. If you own rental property in San Jose or anywhere in Santa Clara County, contact Valley Management Group for a free property management quote and one free month of services.
Legal Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Laws change frequently. Always consult a qualified California real estate attorney for guidance specific to your situation.