The Full Rundown on California Security Deposit Laws in 2024

In the fast-paced world of California real estate, a security deposit is more than just a financial safety net for landlords and property managers; it's a cornerstone of a successful rental strategy. 

Collecting a tenant's security deposit is crucial for protecting your investment, but it's equally important to navigate the intricacies of California's security deposit laws. Adhering to these regulations respects tenants' rights and safeguards you from potential legal complications.

This guide will equip you to balance both of these key aspects. From collecting the security deposit to returning it and everything in between, we'll cover the essentials you need to maintain positive landlord-tenant relationships and run a prosperous rental business.

Ready to ensure your practices are up to par? Dive into the specifics of California's security deposit law below.

California security deposit law, from start to finish

Security deposit limits

Starting July 1, 2024, California's new Assembly Bill 12 (AB 12) will limit security deposits to one month's rent. This law applies to both furnished units and unfurnished units. 

However, there are certain exceptions for small landlords who own just two properties, provided the total rental units between these properties does not exceed four. Landlords who qualify as small property owners may charge up to two months' rent.

While the bill seeks to reduce the financial burden for California tenants and increase housing affordability, it also offers safeguards for landlords, giving them the right to seek damages from tenants that surpass the security deposit amount. You can learn more about what AB 12 means for you here.

Prior to this bill, landlords were permitted to collect security deposits greater than one month's rent, depending on the status of the rental unit. 

Landlords renting out an unfurnished residential property could collect a security deposit equal to two months' rent. For a furnished residential property, landlords could collect three months' rent.

Security deposit collection and holding

Landlords have certain responsibilities when it comes to the handling of the security deposit. In California, specifically, landlords are not legally required to provide receipts for security deposits, nor are they obligated to pay interest on these deposits. 

Additionally, there is no mandate to keep security deposits in a separate bank account.

Security deposit returns

Upon the termination of a rental agreement, California landlords have 21 days to return the security deposit to the tenant. 

If the landlord intends to withhold all or part of the deposit, they must provide tenants with an itemized statement or written notice, covering the reasons and costs of the deductions. 

Landlords can choose to hand deliver this information or send it via first-class mail with pre-paid postage. In the case the tenant failed to provide a forwarding address, the landlord is required to send the notice to the vacant rental property.

If repairs, cleaning, or any restoration services were done to the rental, landlords are required to notify tenants with an itemized statement of expenses within 14 days of the completion or receiving the necessary documentation. 

Landlords should also provide tenants with copies of invoices for contracted services and receipts for items used to correct the deductions. However, the property owner is not required to provide an itemized list if:

• The repairs/deductions are less than $125.
• The tenant waived their right to get receipts.

Allowable deductions

California law permits landlords to make specific deductions from a tenant's security deposit. The deductions include:

1. Unpaid rent: Deductions can be made for any unpaid rent at the end of the tenancy.
2. Damage excluding ordinary wear and tear: Landlords can deduct costs for repairing damage caused by the tenant that goes beyond the expected normal wear and tear. Normal wear and tear refers to the natural deterioration of the property that occurs over time with everyday use, like faded paint, moderately worn carpets, or damaged bathroom fixtures.
3. Cleaning: Costs for cleaning the rental unit to restore it to the same level of cleanliness as at the beginning of the tenancy.
4. Restoration costs: If the tenant has altered the property without permission, the cost of restoring it to its original state can be deducted.

It's essential for landlords to explicitly mention these deductions in the lease or rental agreement to ensure clarity and avoid disputes at the end of the tenancy.

Security deposit disputes

If a landlord fails to return the security deposit within the 21-day period, the tenant has the right to pursue legal action, which could include suing the landlord in small claims court. 

Tenants can sue the landlord for up to twice the amount of the security deposit in damages, particularly if the withholding is deemed to be in bad faith. 

Landlords and tenants may also use a mediation program, rather than going to court, to try to resolve their dispute.

It's crucial for landlords to adhere strictly to security deposit regulations to avoid legal complications and maintain good landlord-tenant relationships.

Additional CA security deposit laws

Initial inspection

Initial inspections help property managers and landlords identify damage in the rental unit and provide the tenant a chance to remedy the situation to prevent or reduce deductions from their security deposit.

In order to do so, landlords must provide the tenant with advance notice of the inspection no earlier than two weeks after the lease expires. 

Furthermore, the landlord is required to provide the tenant with an itemized statement of cleanings and repairs if the tenant chooses to conduct an initial inspection.

Accommodating tenants with disabilities

California landlords are required to allow tenants with disabilities to make reasonable accommodations to the rental unit. Nonetheless, landlords may choose to have the occupant sign a contract stating that they will return the property to its original state upon move-out. 

It's important to note that in this case, California prohibits landlords from requesting additional money for security deposits.

Tax filing

When landlords or property managers first collect a security deposit, it's not considered revenue. Deposits are not considered a form of income, according to the IRS. 

However, tax consequences come into play if the landlord holds the security deposit at the end of the tenancy. The deposit becomes taxable income once the landlord is not required to return the money. 

For example, if the security deposit is used to cover unpaid rent, it must be reported as income in the year the deposit was applied or lost.

Mastering California's security deposit laws for harmonious tenancies

Throughout this guide, we've navigated the intricate details of California’s security deposit laws, from setting limits and lawful deductions to handling returns and resolving disputes. 

Understanding these regulations is not just about legal compliance; it's about fostering positive relationships with your tenants and avoiding costly legal disputes. 

By adhering to these laws, landlords can ensure a smoother, more respectful tenancy experience. Remember, informed property management is the key to a successful and stress-free rental business.

California security deposit law FAQs

Are California landlords required to take an inventory of the property's condition to collect a security deposit?

No, California landlords are not required to document the condition of the rental property before the start of the lease to collect a security deposit.

Are California security deposits non refundable?

In California, security deposits are considered refundable, and landlords cannot charge non-refundable security deposits. According to California law, security deposit payments cannot be labeled as non-refundable in a lease agreement.

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Disclaimer: The information provided in this post does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only. This content may not constitute the most up-to-date legal information. No reader, user, or browser of this article should act or refrain from acting on the basis of information herein without first seeking the advice of a legal professional.