When you rent your property in California, you can collect a security deposit from your tenants. Tenants can pay their security deposit electronically or any other method preferred by the landlord.
The security deposits in California will help you cover from unexpected losses, such as unpaid rent, or cost of repair for property damage.
The security deposit law is part of the California landlord-tenant law.
As a landlord, you must strictly follow the California security deposit laws. So, in this post, we will provide you with an overview of the state’s security deposit law by answering some frequently asked questions!
Let’s get into it!
How much can California landlords charge a tenant as a security deposit?
Under California law, there’s a security deposit limit to the maximum security deposit a landlord can charge a tenant, and this limit depends on whether you’re offering a furnished or unfurnished residential property.
For a furnished residential property, the maximum amount of security deposit the landlord can collect from their tenant is 3X the rent amount.
For unfurnished rentals, the maximum the landlord can collect from a tenant is 2X the monthly rent amount.
Can California landlords charge a nonrefundable security deposit?
No. As a landlord, you cannot charge a tenant nonrefundable security deposits in the state of California. All deposits you collect from your tenant at the start of the tenancy must be returned when the tenant moves out.
How should you store your tenant’s security deposit?
As a landlord, it’s your responsibility to store all tenants’ security deposits. While some states specify where you must store the deposits, the California security deposit law doesn’t.
That means that as a landlord, you are free to store your tenant’s deposit in any financial institution you choose. The account can be interest-bearing, but it doesn’t have to be.
That said, be sure to check the local laws, especially if your rental is in Los Angeles, San Francisco, or West Hollywood. For more help, you can contact the city’s rent control board.
What deductions can a landlord make on a tenant’s security deposit?
Under California security deposit laws, a landlord has a right to deduct certain costs from the security deposit paid by the tenant. Allowable deductions from a tenant’s deposit include:
- Unpaid rent
- Cost of repairs for damage caused by tenant negligence
- Cleaning costs in case the tenant leaves the rental unit in a dire state of uncleanliness
- Restoration costs provided for under the lease or rental agreement
Note, however, that a landlord cannot deduct from a tenant’s deposit in the following situations:
- To fix repairs that existed prior to the tenant signing the rental agreement
- To fix repairs that result from normal wear and tear
But what exactly is normal wear and tear? Damage from ordinary wear and tear is one that occurs during the normal ageing of the property.
Examples of normal wear and tear include:
- Door handles becoming loose after some time
- Wear and tear on the silver finish on bathroom fixtures
- Ordinary wear like fading of the hardwood finish due to sunlight exposure
What a landlord can, however, hold a tenant responsible for while they rent are damages such as:
- Broken or missing door handles
- A broken toilet seat
- A smashed bathroom mirror
Can a California tenant use their security deposit as last month’s rent?
No, the California tenant can’t use their security deposit as advance payment for their last month’s rent. The only exception to this is if the California landlord and tenant have agreed to use in the security deposit in lieu of pay for the last month’s rent and this agreement is in the rent or lease document.
Does a California tenant have a right to a walk-through inspection?
Yes. California tenants who rent have this right.
However, to conduct one, the landlord must follow specific steps:
- Landlords must let the tenant know that they have a right to a walk-through inspection of the unit in the lease. If the tenant waived their right to a walk-through, be sure to document it in writing.
- Landlords must perform the inspection of the unit 2 weeks prior to the expiry of the lease agreement.
- Before the inspection day, landlords must serve the tenant with a 48 hours’ written notice. The written notice must state the time and date of the inspection.
The purpose of a walk-through inspection is to help document the unit’s condition. A landlord has a right to withhold part of their deposit if the tenant has made excessive property damage. If that is the case, the landlord should provide the tenant with an itemized statement of the damages to the unit and repairs to be made in the rental unit that will be held against their deposit.
When should you return a tenant’s security deposit?
Under California law, after a tenant moves out or the end of a lease, a landlord have 21 days to return a tenant’s security deposit, or what’s left of it.
In case you’ve only returned a fraction of the security deposit to the tenant at the end of their lease, you must prepare an itemized statement listing the damage to the property, the cost of repairs you have to pay and send the itemized statement alongside the remaining security deposit to the tenant’s last known address.
There is an exception to this, though. If the deductions don’t exceed $125, landlords don’t have to provide an itemized statement indicating the reasons for the deductions and the cost of repairs to the California landlord.
What may happen if you don’t return the security deposit to the tenant as required?
Security deposit disputes are common. If a landlord doesn’t return the deposit to the tenant, the landlord runs the risk getting sued by the tenant in a small claims court and it can ultimately cost landlords more in the end. If the ruling at the small claims court is made in the tenant’s favor, you may be required to pay up to 2X the security deposit in damages, on top of the initial deposit to the tenant.
Are California security deposits taxable?
No, they aren’t taxed as they are not considered to be the income of a landlord. A security deposit will only be taxed when a landlord doesn’t have any obligation to refund them.
What happens if you sell your rental property?
Under California law, if the landlord intends to sell their unit in the middle of a lease, the former landlord has two options to consider:
- The landlord can transfer all the tenants’ security deposits to the new owner’s name, less any deductions. You must then notify the tenant of the same. The written notice must also include the name, address and contact information of the incoming landlord. You must also let the new owner know of the transferred amount and the deductions made, if any.
- The landlord can return the security deposit back to the tenant when the landlord sells, less any deductions. You must also let the new owner know of the same.
The Bottom Line: California Security Deposit Laws
As a landlord, it is crucial that you are familiar with the California security deposit laws to protect your interests. If you’d rather not worry about legal issues, deposits, or the day-to-day tasks of property management, contact us online to learn what we can do for you!
This information is only meant to educate and not serve as legal advice. For further help, please consult an experienced property management company.
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