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Contents
Landlord Studio is an easy to use property management and accounting software designed for landlords.
Find and screen tenants, collect rent online, track income and expenses, run reports, and more - all for free.
This article provides general information and is not legal advice. For accuracy and specific guidance on landlord-tenant laws, consult an attorney before making any decisions or taking action.
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Most property owners would agree that security deposits are necessary as they act as a lifeline in case of the unexpected that might happen during a tenancy. These deposits can be used to settle unpaid rent, cover utility bills, excessive cleaning expenses, and address property damage when tenants move out.
However, the process of collecting, holding, storing, and returning a security deposit is governed by various California security deposit laws. For example, there are limits to how much a landlord can charge as security deposit and they are required to return the deposit back to the tenant within 21 days after the tenant vacates the property.
Knowing the laws that apply to security deposits in California is essential if landlords want to avoid litigation problems, as failure to comply could lead to significant fines.
This article will cover everything a landlord needs to know about the laws that are applicable to security deposits in California and answer related questions.
Let's dive into some of California's security deposit laws.
Read more: The Complete State-By-State Guide To Security Deposit Laws
There have been some major changes to California security deposit law due to Assembly Bill 12, enacted on October 11, 2023.
Per the amendment, effective July 1, 2024, landlords cannot charge more than one month's rent as a security deposit. This limit applies to both furnished and unfurnished units. However, there's an exception to the one-month limit called the ‘small landlord exception.’
Under California law you can also collect the first months rent at the same time as the security deposit.
According to the California Department of Justice, a small landlord is considered someone who owns no more than two properties with a total of four rental units. Property owners who fall under the category of landlords are allowed to request up to two months' rent as a security deposit.
It's important to note that the above exception does not apply to tenants who are service members. They are protected under the California Civil Code Section 1950.5 and can only be charged one month's rent.
While landlords in California may ask for pet deposits from tenants who have pets any deposit collected is subject to the same cumulative limit as other security deposits. This means that the pet deposit plus the security deposit cannot equal more than 1 month’s rent.
Additionally, when it comes to tenants with disabilities who utilize service animals, the law mandates that they must have equal access to their residences. As such, landlords cannot impose extra fees for service animals. Nevertheless, tenants are liable for any damages caused by their service animals to the rental property.
Per California security deposit law, landlords are permitted to collect a security deposit at the beginning of a tenancy. Should you choose to collect a security deposit from your tenant it is vital that you conduct a detailed move-in inspection beforehand, and a detailed move-out inspection at the end of the lease. This process will help document property conditions, prevent disputes over damages, and ensure fair use of the security deposit for both landlords and tenants.
To simplify the collection and documentation process, we recommend using property management software like Landlord Studio.
Landlord Studio software allows online deposit collection, maintains transaction records, and stores essential documents such as receipts and inspection reports. Its features are designed to help improve organization and compliance with security deposit laws in California.
Read more: Steps to Collecting the Security Deposit and First Month’s Rent.
Under California security deposit law, there are specific situations or expenses landlords can use a tenant's deposit to cover. Some of these deductions may include:
However, landlords may not use security deposit California for pre-existing damages, unnecessary expenses, or normal wear and tear.
Read more: What Can Landlords Deduct From The Security Deposit?
Following the guidelines in Civ. Code §1950.5., a landlord has 21 days after a tenant moves out for a full security deposit return.
If any deductions are made during the rental period, the landlord will return the remaining balance of the security deposit along with a security deposit return letter. This statement must clearly specify the items deducted and the reasons for each deduction.
For deductions exceeding $125.00, landlords must provide copies of relevant invoices or security deposit receipts along with the itemized statement. If the work was performed by the landlord or their staff, they are obligated to include a description of the work done, the time it took, and the hourly rate charged. It is also important that these rates are deemed reasonable.
Download your free Security Deposit Receipt(s)
Under California security deposit law, landlords are not required to keep security deposits in a separate account, but they must handle them responsibly. It's advisable to keep these funds separately to avoid mixing them in with personal finances, ensuring that the security deposit is readily available when the tenancy ends.
Proper documentation and accounting practices can help landlords track the security deposit and any deductions, providing transparency and avoiding potential legal issues.
Landlords are not required by California law to pay interest on security deposits. However, a few Californian cities require interest rate payments, such as Los Angeles, Berkeley, Capitola, Santa Cruz County, West Hollywood, and San Francisco.
In California, security deposits collected by landlords are not considered taxable income until they are no longer refundable. The IRS states that these deposits only become taxable when the landlord is free from the obligation to return them, which means tax implications arise based on whether the landlord retains the deposit.
Therefore, it's crucial for landlords to accurately track and report this income. Using software like Landlord Studio can simplify the process of filing and reporting security deposits for tax purposes.
Additional read: What Landlords Need To Know About Security Deposit Accounting
California security deposit laws can change at times. So, it's important you check for updates that might have occurred before collecting security deposits. The recent changes, particularly Assembly Bill 12, significantly impact the maximum allowable security deposits and provide specific guidelines on deductions and return timelines.
It's essential for landlords to follow these regulations to prevent disputes, foster positive tenant relationships, and avoid potential legal issues. Using useful tools like property management software can further streamline the process, ensuring proper documentation and transparency throughout the tenancy.
Create your free Landlord Studio account to day to collect rent online and streamline security deposit collection and management.
Yes, security deposits in California are refundable at the end of the lease. Therefore, landlords are prohibited from charging non-refundable fees related to these deposits.
Under California security deposit laws, a security deposit return must be done by the landlord within 21 days after the tenant moves out. Failure to do so can result in litigation problems.
After the 21-day deadline for security deposit return in California ends, tenants may file a lawsuit in Small Claims Court to recover it. If the court rules in favor of the tenant, the landlord may face penalties, including paying up to three times the deposit amount.
There are no legal requirements for landlords to store security deposits in a specific manner or separate accounts in California. However, it is best practice to avoid commingling security deposits with other funds. And deposits are still expected to be securely held.
Landlords can either return the deposit to the tenant or transfer it to the new owner, informing the tenant of any deductions made.
