Security deposits, like many aspects of renting residential property, are heavily regulated in California. California statutes state what you should do, when, and how. You could play fast and loose with the rules and skirt around the edges. But if you get into this bad habit, chances are good that at some point a tenant will take you to court, and the outcome may be very expensive for you.
Landlord guidelines for handling security deposits are covered by California Civil Code 1950.5.
What is a Security Deposit?
A security deposit is a sum of money paid by the tenant at the start of a lease or rental agreement. If all goes well and the tenant complies with the lease, all or most of the deposit should be refunded. The purpose is to protect the landlord by setting aside funds that may pay for property damage, cleaning needed if the unit’s especially soiled or dirty, or for unpaid rent at the end of the tenancy.
What are the Limits on a Security Deposit?
You cannot collect more than one month’s rent as a security deposit, whether or not the unit is furnished, unless you’re a natural person (or an LLC made up of natural people) who owns no more than two rental properties that total four or fewer units. If that’s the case, you may collect up to two months’ rent. However, that exception doesn’t apply if the prospective tenant is an active member of the US Armed Forces or National Guard.
Deposits that you collected before July 1, 2024, remain governed by the state’s prior rules.
Funds previously designated as pet, key, or cleaning deposits must be included in the single one-month rent maximum. There can’t be “nonrefundable” deposits, such as an automatic deduction for flea spraying if the tenant has a pet.
How May a Security Deposit be Used?
You can use the money from a security deposit for:
- Unpaid rent
- Repairing damages to the premises, beyond ordinary wear and tear, caused by the tenant or by their guest(s) or licensee(s)
- Cleaning the premises to return it to the same level of cleanliness it was when the tenant took possession
- Restoring, replacing, or returning personal property or appurtenances, exclusive of ordinary wear and tear, if the rental agreement authorizes this use of the security deposit
- Deductions must be reasonably necessary and cannot cover pre-existing issues
California law creates specific requirements for handling security deposits. They include:
- Itemized List of Deductions
Within 21 days after a tenant vacates the property, you must provide the tenant with a written, itemized list of deductions from the security deposit. It must include the amount of each deduction and an explanation for each.
- Receipts
You must provide your tenant with written receipts showing the charges incurred to repair or clean the apartment if the total is $125 or more. The receipts must be attached to the final security deposit accounting.
If you or your employee did this work, you must reasonably describe the work and include the time spent and the reasonable hourly rate you charge. To try to prevent a debate as to what’s “reasonable,” take a conservative approach to your charges. If you hire someone else to do the work, you must provide the resident with a copy of the bill, invoice, or receipt you received, with the contractor’s name, address, and telephone number.
If a repair can’t be made, or receipts are not available within the 21-day period, you may deduct a good-faith estimate for the deduction and provide an estimated accounting to the resident within the 21 days.
- Return of Security Deposit
If there are no deductions, you must return the entire deposit to the tenant within 21 days of the tenant leaving the property. You must offer to return the deposit electronically if your tenant paid their rent or the deposit electronically. You and your tenant can also agree on an alternative return method. If there are multiple tenants on the same lease, the deposit may be returned by a joint transfer or payment.
- Interest
If your rental property has 16 or more units, and the tenant has resided there for more than a year, you must pay interest on the security deposit at a rate of at least 0.5% annually.
- Move-in Inspection
At the tenancy’s start, you must conduct a move-in inspection with the tenant. This is to document the property’s condition at the start of the lease or rental agreement. For new tenancies beginning July 1, 2025, landlords must also document the unit’s condition with photographs at move-in. Shooting a video or photos of your inspection with your smartphone may be useful if there are future disputes about the unit’s condition at the start of the tenancy. You should provide the tenant with a copy of the inspection report and a copy of the video or photos if you have them.
- Walk-Through Inspection
Within a reasonable time after you or the tenant give notice of ending the tenancy or before the end of the lease term, you must notify the tenant in writing that they can request a pre-move out inspection and of their right to be present at the time. If they do so, you must make a reasonable effort to accommodate the request and perform it in the last two weeks of the occupancy.
Shooting another video or pictures of the unit’s condition during the final inspection is also a good idea. It should provide a clear “before and after” comparison to resolve potential disputes. You must take dated photos after a tenant vacates, before and after any repairs or cleaning.
After inspection, you must give the tenant an itemized statement identifying the cleaning or repairs that will cause security deposit deductions if they’re not addressed before the tenant vacates. After this inspection, the tenant may remedy the problems (if that’s allowed under the lease), to prevent security deposit deductions.
Your deductions must be consistent with your written inspection statement. You can’t add new charges for items you failed to identify during your walkthrough.
The Consequences of Not Complying with State Law
If you don’t comply with California Civil Code 1950.5, the tenant may be awarded damages and attorney’s fees if they take you to court. A landlord who’s deemed to have willfully violated state law by retaining a security deposit or failing to provide the required statements, photographs, or invoices may be liable for up to twice the deposit amount, plus actual damages. If you mishandle $2,000 deposit, you could face a claim for $4,000 plus the former tenant’s out-of-pocket costs.
If you can’t reach an agreement to resolve a dispute, either party may file suit in Small Claims Court.
Small claims jurisdictional limits are $10,000 for “natural persons” in most situations. The jurisdictional
limit remains at $5,000 for plaintiffs who are corporations, partnerships, unincorporated associations, governmental entities, LLCs, or other entities.
We’re Here to Help
If you’re a residential landlord with questions about security deposits or you need legal representation, call the team at AWB Law, PC at (949) 244-4207 or email us at info@awblawpc.com.
