As a landlord in California, it’s important to protect the interest of yourself and your investment property. For this, being familiar with the landlord-tenant law is essential. Part of this law allows you to collect a security deposit from your tenants.
Collecting security deposits in California offers several benefits for landlords, including:
- Covering Unpaid Utilities: Upon a tenant's move-out, landlords can use the security deposit to pay for any unpaid utilities that were under the tenant's name. This is in accordance with California security deposit law, which allows for appropriate deductions from the deposit for unpaid utilities.
- Addressing Excessive Cleaning Costs: Leases typically require tenants to leave the premises in the same condition as they found it, accounting for normal wear and tear. In cases where tenants leave the property extremely unclean, landlords have the right to use the security deposit to cover the costs of excessive cleaning.
- Compensating for Lost Rent Payments: Nonpayment of rent is a common issue and a breach of the rental contract. In such cases, landlords are entitled to use part or all of the tenant's security deposit to offset the loss in rent payments.
- Recovering Lost Rental Income: If a tenant abandons the property or breaks their lease early, landlords can deduct from the security deposit to recoup losses associated with these situations.
- Repairing Excessive Property Damage: Landlords can use the security deposit to repair damages that go beyond normal wear and tear.
A Guide to California’s Security Deposit Law
1. California Security Deposit Limit
It's generally known that California law sets the maximum amount a landlord can charge for a security deposit. This amount varies based on the type of rental:
Unfurnished Units: For unfurnished units, landlords in California are currently allowed to charge a maximum of two months' rent as a security deposit. This limit ensures that tenants are not excessively burdened by high upfront costs when renting an unfurnished property.
Furnished Units: For furnished units, the maximum security deposit that can be charged is higher, set at three months' rent. This reflects the additional value and risk associated with the furnishings provided by the landlord.
It’s worth noting that there will be changes in this rule effective July 1, 2024:
Changes with AB 12: The implementation of AB 12 will alter the current limits, reducing the maximum security deposit that a landlord can charge to the equivalent of one month's rent for both furnished and unfurnished residential rentals. This change is part of a broader reform to make renting more affordable and accessible in California.
Exceptions to the New Rule: Despite the general one-month rent limit set by AB 12, there are exceptions. Landlords who are natural persons or members of a limited liability company and who own no more than two residential rental properties (with no more than four dwelling units in total) are allowed to demand up to two months' rent as a security deposit.
However, this exception does not apply if the prospective tenant is a service member; in such cases, the maximum remains one month's rent.
2. Non-refundable Fees
Nonrefundable fees could include various charges that are not part of the security deposit and are not returned to the tenant at the end of the lease. These may cover administrative costs, application processing, or specific services provided by the landlord.
The lease agreement must specify which charges are non-refundable to ensure clarity and avoid disputes over refund entitlements at the end of the lease.
3. Storing a Tenant’s Deposit in California
In California, the law does not specify particular requirements for how landlords must store a tenant's security deposit. While other states have specific rules regarding the storage of security deposits, California landlords have considerable leeway in deciding how to handle these deposits.
However, landlords must ensure that the funds are separate from their personal funds and that they are stored in a safe and accessible account.
4. Written Notice after Security Deposit Receipt
In California, landlords must provide tenants with a written notice after receiving a security deposit. This notice should detail the amount of the deposit and the terms under which portions of it might be withheld at the end of the tenancy.
5. Reasons to Withhold a Tenant’s Security Deposit in California
Landlords can withhold a tenant's security deposit for unpaid rent, damage costs exceeding normal wear and tear, and cleaning and restoration costs to return the unit to its original condition at the start of the tenancy!
6. A Walk-Through Inspection
Landlords must offer tenants an initial inspection before the end of the lease, allowing tenants to repair any damages. This helps in determining the amount that may be deducted from the security deposit upon move-out.
7. Security Deposit Refund in California
Landlords have 21 days after the tenant vacates the premises to return the security deposit, along with a written list of any damages. If deductions are made, an itemized statement including repair and cleaning documentation must be provided. The penalty for late return is twice the security deposit amount.
8. Change in Property Ownership
In California, when a rental property changes ownership during a lease, the outgoing landlord has two primary options:
Transfer the Deposit: The landlord can transfer the remaining portion of the security deposit (after any lawful deductions) to the new owner. The landlord must then notify the tenant about this transfer, including details about the new owner and any claims made against the deposit.
Return the Deposit to the Tenant: Alternatively, the landlord can return the remaining portion of the security deposit after legal deductions directly to the tenant, along with an accounting of any deductions made.
In both cases, the landlord must notify the tenant about these actions, detailing any deductions made and providing the new owner's contact information.
If the outgoing landlord fails to comply with these requirements, the new property owner becomes jointly and severally liable with the previous landlord for the return of the security deposit to the tenant.
The new owner is not allowed to charge a replacement security deposit from the tenant until they have either returned the original deposit or provided a detailed accounting.
Bottom Line
If you are unsure of what to do, it’s best to seek legal assistance from a California real estate attorney. Alternatively, you may work with a professional property management company to help ensure that you remain in compliance with the law. Contact Ratner Property Management and we will be happy to serve you!
Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.
