In California, the collection and return of security deposits are primarily regulated under CA Civ. Code §1950.5. These laws provide a set of rules that California landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in California
The maximum amount California landlords can charge as security deposit is the equivalent of two months’ rent for unfurnished residential units or three months’ rent for furnished ones. Additionally, if a tenant owns a waterbed, the landlord can add an extra one-half month’s rent.
If the tenant is an active service member, then the limit is one month lower (one month’s rent for unfurnished units and two months’ rent for furnished units). As an exception to the exception, the lower limit will not apply even if the tenant is an active service member if:
- The tenant has a history of poor credit or of causing damage to property rented; or
- The lease is shared by a group of people and has at least one member that is not a spouse, domestic partner, parent or dependent of the service member.
If one or both of the two instances above are true, then the usual higher limit will apply.
Additional Pet Deposits: Under California’s law, the landlord may ask for an additional pet deposit. However, people with disabilities who use service animals are must have full and equal access to housing. Thus, the landlord cannot discriminate shall ask the tenant to pay extra for a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.
The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.
Exceptions to the Limit
California landlords can increase the security deposit in the terms of the rental agreement in the following situations:
- The landlord may charge more for alterations to the rental unit (apart from those cleaning and repairs costs charged to the previous tenant) that the tenant and the landlord have mutually agreed on.
- The landlord may require advance payment of six months’ rent or more if the term of the lease is six months or longer.
Also, the limits only apply to rental agreements for residential units. They do not apply to the following:
- Rent or lease of commercial real property, in which case there is no limit to the security deposit.
- Mobile Home Spaces, in which case the limit is one months’ rent.
Allowable Deductions on Security Deposits in California
The landlord can deduct from the tenant’s security deposit amounts that are reasonably necessary for the below purposes:
- Unpaid rent (including the rent owed if the tenant doesn’t provide the landlord with proper notice of moving out).
- Cost of repairs for damage caused by the tenant.
- Cleaning costs when the tenant vacates the property. The unit must return to the same level of cleanliness at the beginning of tenancy. Cleaning costs applies to leases after January 1, 2003.
- Restoration costs that are provided under the rental agreement.
These costs should be disclosed in the lease agreement. However, even if they fall under any of the above, the landlord cannot deduct the for the below reasons:
- Cost of repairs for damage that were from the former tenant;
- Cost of repairs or restoration for normal wear and tear; or
- Cost of repairs or restoration for damage caused by cumulative effects of wear and tear, even if it is beyond what is “usual” for wear and tear. (e.g., accumulated wax build-up on a surface, total failure of an appliance due to deterioration over time).
“Normal Wear and Tear” vs. “Damage” in California
- “Normal Wear and Tear” refers to minor issues that occur naturally. These minor issues can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, and mold.
- “Damage” refers to the destruction that is a result of abuse or negligence by a tenant during the tenancy period. Damage to the rental property negatively impacts its usefulness, value, or normal function. It can include pet damage (heavily stained and ripped carpets), broken tiles, holes in the wall, broken windows and missing fixtures.
Can the Deposit be Used by the Tenant as Last Month’s Rent? Not usually, unless it’s in the written lease agreement.
Returning Security Deposits in California
Time Frame. California landlords have 21 calendar days after the tenant has moved out of the rental property to return the tenant’s security deposit.
The landlord is not liable to return the security deposit earlier than the following terms:
- 60 calendar days before the end of the term of a lease that has a definite term.
- The last day to give notice to comply with the required minimum number of day’s notice for termination, for leases or rentals without a fixed term, specifically:
- If the tenant is terminating the lease:
- For month-to-month rentals with no fixed term, 30 days before the desired date of termination.
- For other rentals with no fixed term, the number of days’ notice the parties agreed on or, if the parties have no such agreement, the length of the period in which the rent is charged (e.g. weekly, every two weeks, every 10 days, etc.). But in either case, never less than seven days or more than 30 days, before the proposed termination date.
- If the landlord wants to terminate a lease with no fixed term:
- 60 days before the proposed termination date if the tenancy has lasted at least a year.
- 30 days before the proposed termination date if the tenant has rented for less than a year.
- If the tenant is terminating the lease:
Itemized List of Charges. The landlord must inform the tenant of the basis and cost of deductions in an itemized list on a written notice. Delivering the notice personally or via first-class mail with prepaid postage is appropriate. If the tenant did not provide a forwarding address, the landlord shall mail the written notice via first-class mail to the address of the vacated unit. The landlord and tenant have the option of the sending of the itemized list via e-mail, and/or paying the security deposit, or the remainder, by depositing the same in a bank account.
Tenants should receive copies of documents showing the cost of deductions (i.e., receipts for supplies purchased, the invoice/bill for services contracted). If the landlord is not able to provide these documents within 21 days or the repairs are incomplete, the landlord can give a reasonable estimate of the costs.
The landlord must provide the tenant with the exact costs within 14 days after the work is complete or after the landlord gets the documentation.
Exception. The landlord will not need to comply with the above rules on providing an itemized list if either:
- The deductions are not more than $125; or
- The tenant waives rights under them in writing delivered with the tenant’s notice of termination.
If the tenant requests documentation, the landlord must provide the itemized list as required within 14 days of the request, notwithstanding one or two above.
Failure to Return Security Deposit as Required. If the landlord does not return the deposit, the tenant may sue for the recovery of the same in Small Claims Court (as long as the amount sued is $10,000 or less).
If the landlord is found to have acted unreasonably in withholding the amount or in “bad faith”, the landlord may be made to pay two times the security deposit in damages, in addition to returning the amount originally withheld.
Security Deposits and Tax Filing in California
How the security deposit will be treated tax-wise depends on if the landlord gets to keep it.
Taxable Income: Security deposits are not automatically considered income when the landlord receives them. The IRS advises to not include security deposits as income. They only become taxable income when the landlord no longer has any obligation to refund them. For example, if the security deposit was given in 2021 but was only forfeited in 2022, then the landlord should only include it as income in 2022.
Reporting Security Deposit as Income: Whether or not security deposit should be reported as income and when to do so will depend on what it is being applied to or used as. Below are three simple rules the IRS has suggested to follow:
- When the deposit is forfeited due to a breach of the lease or applied to unpaid rent, the amount kept should be declared as income in the year it was forfeited or applied.
- When the security deposit is used to cover expenses that are chargeable to it, then the landlord should only include the part of the deposit used as income if the landlord includes the cost of repairs as expenses. If the landlord doesn’t include them as expenses as a matter of practice, then there’s no need to include the part of the deposit kept to cover them as income.
- If there is an agreement between the parties to use the deposit or part of it as the final month’s rent, then the landlord should include it as income when the same is received.
Additional Rules & Regulations in California
Initial Inspection. Initial inspections help identify and allow the tenant to fix any damage in the unit to avoid or minimize deductions on their security deposit. The landlord is required to inform the tenant to have an initial inspection of the unit within a reasonable time, but not earlier than two weeks from the termination of the lease.
The tenant may choose to skip the initial inspection. If the tenant opts to have an initial inspection, the landlord must provide the tenant with an itemized deductions of the repairs and cleanings. Note that the landlord may only include repairs and cleanings that are beyond normal wear and tear.
Interest Payments. California State laws do not require landlords to pay interest on security deposits. However, several cities within California do. Some of them specify the interest rates, specifically, Berkeley, Los Angeles, Santa Cruz County, Capitola, West Hollywood and San Francisco.
Non-Refundable Security Deposits. Security deposits in California are always subject to refunds. California law prohibits a lease agreement to contain language stating that security deposits are non-refundable deposits.
Alterations to Accommodate a Tenant with a Disability. A landlord must allow a tenant with a disability to make reasonable modifications to the rental unit. The landlord may require the tenant to enter into an agreement to restore the interior of the rental unit to its previous condition.
According to California law, the landlord cannot require an additional security deposit in this situation. However, the landlord and tenant may agree, as a part of the tenant’s rental agreement to restore the rental unit, that the tenant will pay a “reasonable estimate” of the restoration cost into an escrow account.
New Property Owner’s Responsibility. If the landlord sells or otherwise transfers ownership over the rental unit during the lease, the landlord can either:
- Transfer the security deposit. Landlord may transfer the security deposit to the new owner. The landlord may do so by personal delivery or first-class mail with prepaid postage. If the landlord notifies the tenant by personal delivery, the landlord needs an acknowledgment receipt; or
- Return the security deposit. Landlord may return it to the tenant as the landlord would at the end of the tenancy.
The landlord must decide on the above before selling the property and inform the buyer. Prior to the sale, the landlord must provide the new owner with a written statement containing the following information:
- The amount of the security deposit (after deductions);
- An itemized list of deductions made; and
- Inform the tenant of the location of the security deposit.
Failure to do the above will make the landlord and the new buyer jointly and severally liable for the returning the security deposit to the tenant.
For additional questions about security deposits in California, please refer to the official state legislation, California Civil Code § 1950.5 and § 1940.5, for more information.
- 1 CA Civ Code § 1950.5 (2020)
- 2 CA Civ Code § 1950.5 (2020)
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- 9 CA Civ Code § 798.39 (2018)
- 10 CA Civ Code § 1950.5 (2020)
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- 21 CA Civ Code § 1946 (2019)
- 22 CA Civ Code § 1946 (2019)
- 23 CA Civ Code § 1946.1 (2013)
- 24 CA Civ Code § 1946.1 (2013)
- 25 CA Civ Code § 1950.5 (2020)
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