Key Takeaways
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Under California AB 12, most landlords can collect only one month’s rent as a security deposit. Only landlords with two or fewer properties (totaling four or fewer units) are exempt from this limit.
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Landlords may only withhold portions of a security deposit for unpaid rent, damage beyond normal wear and tear, cleaning, or missing items. They must return any remaining balance within 21 days of move-out, along with an itemized statement and receipts for any deductions.
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While not all notices are legally required, clear documentation, a pre-move out inspection, and proper written notices help prevent disputes. Failure to comply with California Civil Code can lead to penalties of up to twice the deposit amount.
Did you know that disputes over security deposits are among the most common legal issues between California landlords and tenants? Understanding the state’s rules can help you avoid costly mistakes, maintain positive tenant relationships, and stay compliant with California’s landlord-tenant laws and fair housing policy.
Collecting a security deposit from your tenant offers many benefits. They include:
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Protecting against property damage beyond normal wear and tear
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Covering unpaid rent or utility bills
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Encouraging tenants to take better care of your property
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Providing funds to handle cleaning costs when tenants move out
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Offering a financial safeguard if a tenant leaves the lease early
Jambi Property Management put together this article to help landlords better understand the specific rules, limits, and procedures for handling tenant security deposits in California.
California Security Deposit Law: A Guide for Landlords
California Security Deposit Limit
Beginning July 1, 2024, under California AB 12, most landlords (except certain small landlords who have two or less properties with a total of four units or less) may only collect one month’s rent as a security deposit, regardless of whether the unit is furnished or not. This new rule is meant to reduce financial burdens on tenants while ensuring fairness in the rental process.
Commercial properties are not subject to these same limits, as the law applies specifically to residential rentals.
Nonrefundable Fees
California law doesn’t allow nonrefundable security deposits or fees. Every amount collected as a security deposit must be refundable. Landlords cannot label any part of the deposit as nonrefundable. However, separate application or screening fees are allowed as long as they comply with the state’s tenant screening laws.
Storing a Tenant’s Deposit in California
Unlike some other states, California law does not require owners to keep a tenant’s deposit in a separate bank account or in an interest-bearing account. Landlords may hold the deposit in any manner they choose. That said, it's good business practice to keep the deposit funds separate from your personal or business operating accounts to avoid any confusion or potential disputes.
Written Notice After Security Deposit Receipt
California landlords are not required by law to provide tenants with written notice confirming receipt of a security deposit. It’s recommended to do so. Providing a written acknowledgment creates a paper trail and helps avoid misunderstandings about the amount paid and the date it was received.
Reasons to Withhold a Tenant’s Security Deposit in California
Under certain conditions, landlords in California can keep all of a tenant’s security deposit. Common reasons include:
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Unpaid rent or late fees
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Repair costs for damage beyond normal wear and tear
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Cleaning costs to return the unit to the same level of cleanliness it had at move-in
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Replacement of keys or other property items if not returned
Under California Civil Code §1950.5, landlords are not allowed to keep the deposit to fix issues that existed before the tenant moved in or to pay for ordinary wear and tear such as minor carpet fading or small nail holes. The landlord bears the burden of proving any deductions with documentation, such as receipts, invoices, and before-and-after photos.
A Walk-Through Inspection
California law requires landlords to offer tenants a pre-move-out inspection, often called a walk-through inspection.
The landlord must provide the tenant with at least 48 hours’ written notice before the inspection. The tenant has the right to be present during this inspection. Afterward, the landlord should provide a list of potential deductions, giving the tenant an opportunity to clean or repair those items before the final move-out date.
Security Deposit Refund in California
Once the tenant vacates the unit, California law requires landlords to return the full deposit, or the remaining balance after deductions, within 21 calendar days.
If any amount is withheld, the landlord must provide the tenant with:
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An itemized statement listing each deduction
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Receipts or invoices for work done or items replaced
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The remaining balance of the deposit
If the landlord uses a cleaning or repair company, receipts must show the company’s name, address, and contact information. For work the landlord performs personally, they must include an itemized statement of time spent and the hourly rate charged.
Failure to comply with the 21-day rule can expose landlords to penalties, including potential damages up to two times the amount of the deposit in addition to the amount wrongfully withheld.
Change in Ownership
When ownership of a rental property changes hands, the outgoing landlord has two options:
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Return the deposit to the tenant, minus any lawful deductions, and notify the incoming owner of the refund.
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Transfer the deposit to the new landlord. The outgoing owner must then notify the resident in writing of the transfer.
The notice must include the contact information, name, address of the new owner. From that point on, the new owner assumes full responsibility for the security deposit and any obligations related to it.
Conclusion
Handling a tenant’s security deposit correctly is one of the most important responsibilities for landlords in California. Following the state’s security deposit laws helps you avoid disputes, stay compliant, and maintain good relationships with tenants.
Jambi Property Management can help landlords navigate California’s complex rental laws, including security deposit handling, inspections, and documentation. Our team ensures full legal compliance while protecting your investment and minimizing tenant disputes. Contact us today to learn more about how we can simplify your rental operations and keep your business running smoothly.
Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws frequently change, and this post might not be updated at the time of your reading. Please contact us for any questions you have regarding this content or any other aspect of your property management needs.
