What Rental Owners Need to Know About Tenant Security Deposits

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 can sometimes be described as a cleaning charge, pet deposit, move-in fee, or other terms, but under California law, upfront payments made by a tenant that are not 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 would be required to follow all the regulations laid out by the city when it comes to rentals. But security deposits do not fall under that oversight.

Instead, security deposits are governed solely by state law, specifically Section 1950.05 of the California Civil Code, which contains several important specifics.

How much can be charged?

California law limits the amount of a security deposit to the equivalent of two months’ rent for unfurnished units and up to three months for furnished dwellings. If you’re doing property management in San Jose and have an unfurnished unit renting for $2,500 per month, you’d be lawfully permitted to charge a maximum of $5,000 as a security deposit.

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. It’s a good idea for the owner or property manager to do a room-by-room inspection of the unit with the prospective tenant prior to a move-in. A thorough checklist should be filled out and signed by both parties so that the condition of the property is documented and agreed upon. It’s also a good idea to take multiple photos of each room that can be referenced in the future when a tenant later moves out.

When the time comes for the tenant to move out, the same procedure should be followed. Any differences in the condition of the property can easily be noted with side-by-side comparisons of inspection checklists and photos.

What may be deducted?

After a final inspection, a property owner may deduct costs upon return of the security deposit. Under California law, the owner is permitted to withhold deposit funds for any unpaid rent; damages beyond normal wear and tear, items missing from the property, and “reasonable” cleaning fees in order to return a unit to its level of cleanliness before the next tenant moves in.

Normal wear and tear is the natural deterioration of materials in a property over time. For example, faded or chipped paint on walls or worn carpets and floor coverings is expected over a period of time. However, things like broken windows or complete holes in walls would be damage. “Damage” is anything that’s 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 from a tenant’s security deposit 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 final inspection within two weeks of their moving out. At that time, the tenants must be provided with a list of potential deductions if they do not correct them by the move-out date.

Once the tenant has moved out, the rental owner must refund the security deposit within 21 days. If there are any deductions made for expenses incurred to repair or clean the property, they must be itemized in writing and supplied to the tenant with the returned security deposit funds.

If you’re a rental property owner or manager, keep in mind that you may be legally liable for up to two times the amount of the deposit in fines and penalties for mishandling a security deposit.

The bottom line

By using the services of a professional property management company rental owners have more free time, peace of mind, and less stress of dealing with the issues of a rental property. Valley Management Group is full services property management company in San Jose that handles all the issues associated with managing rentals. If you own rental property in San Jose or anywhere in Santa Clara County contact Valley Management Group and have any questions contact Valley Management Group at 408 286-4200 for free property management quote and one free month of services.