Security Deposits in California

Whether you’re a residential landlord or a tenant, it’s important to have a basic understanding of how to handle security deposits in California so that you avoid unnecessary disputes. In this article, we’ll go over the rules on security deposits in California and what they mean to you.

What is a Security Deposit?

A security deposit is any money tenant pays to a landlord other than the advance payment of rent. The purpose of the security deposit is to cover at least some of  the landlord’s losses in the event of:

• The tenant breaking the lease 
• The tenant violating the terms of the lease 
• Damage to the property
• Additional cleaning
• Lost keys
• Unpaid rent

Residential security deposits in California are generally regulated by Civil Code Section 1950.5. Civil Code Section 1953 generally prohibits lease provisions which seek to modify or waive the tenant’s rights under Section 1950.5.

Limits On The Amount of a Security Deposit

For an unfurnished residential property, the security deposit may equal two times the rent amount. For an furnished residence, the landlord may charge up to three times the rent. For a commercial property, there is no restriction on the amount of the security deposit. 

Does A Landlord Have to Pay Interest on Security Deposits in California?

Generally not. However, some local governments, including San Francisco, have also passed laws requiring landlords to pay interest on security deposits in California.

Returning the Security Deposit to the Tenant

After a tenant moves out, a landlord has 21 days to return the full amount of the security deposit, or provide to the tenant:

• A written explanation of the reason for keeping all or part of the deposit
• An itemized list of deductions from the security deposit
• Any remaining refund of the deposit
• Copies of receipts. However, if the tenant waived the right to receipts, or the repairs cost less than $126, the landlord does not need to provide receipts. 

If the landlord has not completed repairs within 21 days, the landlord can provide an estimate for the cost of repairs. Within 14 days of completing the repairs, the landlord must furnish receipts to the tenant.

After the 21-day deadline, the landlord technically forfeits the right to make deductions, and is supposed to return the entire deposit. However, the landlord still has the right to sue the tenant for damages, or raise his/her claims as a defense if the tenant sues for failure to return the deposit.

Can Tenants Use Their Security Deposit for the Last Month’s Rent?

If some or all of the deposit paid by the tenant is designated in the lease as “last month’s rent,” that amount may be used as the last month’s rent. Unless the landlord specifically agrees to it, the tenant has no legal right to use the deposit to pay  the last month’s rent.

What Can Landlords Deduct From Security Deposits in California?

A landlord can deduct the following from a security deposit:

• The cost of fixing damage to the property caused by the tenant. This does not include ordinary wear and tear.
• The expense of cleaning. However, this can only cover the cost to make the unit as clean as it was when the tenant moved in, less reasonable wear and tear.
• Unpaid rent. This may include rent owed if the tenant fails to give the landlord the proper notice of moving out.

What Can Landlords NOT Deduct from Security Deposits in California?

A landlord can only deduct from a security deposit necessary and reasonable amounts. Charges to a tenant cannot be for “ordinary and reasonable wear and tear.” To illustrate, a landlord cannot charge a tenant for painting, new carpet, or window coverings unless a tenant damages them beyond ordinary and reasonable wear and tear.  In addition, a landlord cannot use a security deposit to repair pre-existing problems prior to the tenant moving in. 

What Happens to the Security Deposit if a Landlord Sells the Property?

If a landlord sells the rental unit while the tenant still lives there, the landlord must transfer the security deposit to the new owner. The new owner must refund the deposit according to the same rules when the tenant moves out. If the previous owner does not transfer the security deposit to the new owner, the tenant can sue the prior owner for the amount of the security deposit owed.

How to Avoid Disputes Over Security Deposits in California

Keep Accurate Records

A tenant may request a walk through both when the tenant moves in and when the tenant moves out of the rental. The tenant may also request that the landlord provide a checklist that identifies the condition of the property and documents any existing problems with the rental unit.

It is a good idea for both the landlord and the tenant to photograph and/or video the condition of the rental unit before the tenant moves in, and after the tenant moves out. This will help provide objective evidence in the event of a dispute about the condition of the rental unit.

Provide Proper Notice

A month-to-month tenant who intends to move out must give the landlord thirty days’ notice in writing. If the tenant fails to provide proper notice, the landlord can charge the tenant for the thirty days of unpaid rent, unless the landlord is able to re-rent the unit (and collect rent) within the thirty-day period. 

In instances where a tenant wants to move out before the end of the lease, the landlord and tenant may be able to negotiate an agreement. For example, the landlord may allow the tenant to sublet the unit, as long as the sub-tenant abides by the lease requirements. Or, the landlord may permit another tenant to take over the lease, return the security deposit, and take a new security deposit from the tenant assuming the lease.

If a landlord does not agree to allow a tenant to break the lease or to sublet, the landlord would normally be entitled to damages, as provided by law and/or the parties’ lease. Normally, the tenant is still liable for the rent through the end of the lease, but the landlord must make reasonable efforts to re-rent the unit. If the landlord is able to rent the unit for the same rent or higher, the tenant is only liable for the amount owned during the  time the unit was not rented. If the tenant owes money for breaking the lease early, the landlord may deduct it from the security deposit, and then sue the tenant for any damages exceeding the amount of the deposit.

Resolving Disputes Over Security Deposits in California

In the event of a dispute, the tenant can write a letter to the landlord explaining why they believe they should receive a larger refund. If they cannot agree on the amount of the security deposit to be returned, the tenant can file a lawsuit against the landlord for return of the security deposit. Depending on the amount of money involved, suing in small claims court often makes the most sense. 

If a judge determines the landlord retained the deposit in bad faith, the judge has the discretion to not only award the tenant whatever was wrongfully withheld from the deposit, but also statutory damages of up to twice the amount wrongfully withheld from the deposit.

Alternatively, mediation can be a good choice for landlords and tenants who disagree. A mediator can examine both sides in order to help them come up with a solution. Mediation agreements can be tailored to specific situations and allows both parties to negotiate options that may work for both sides.

The mediator does not force the parties to reach a settlement. If they’re able to reach a settlement, the landlord and tenant can write up and sign a settlement  agreement, and avoid going to court. If they ultimately cannot agree, legal representation helps the parties clarify the issues involved.

If you need assistance with a potential landlord-tenant dispute, contact Steven Adair MacDonald & Partners at 415-562-0504.