California Security Deposit Law

Last Updated: September 16, 2021 by Elizabeth Souza

QUICK FACTS
  • Standard Limit / Maximum Amount: Two months’ rent, three months’ if furnished (read more)
  • What Can Be Deducted: Unpaid rent, and costs of repairs, cleaning, and restoration (read more)
  • Time Limit for Return: 21 days after the tenant moves out (read more)
  • Penalty if Not Returned on Time: The amount of security deposit, plus twice that amount if the landlord was in bad faith (read more)

Purpose. Security deposits are used to ensure a landlord is compensated, at least in part, for any loss that the tenant is responsible for. In California, the purpose of a security deposits is to reimburse the landlord for costs related with processing a new tenant, advance rent payment, to cover unpaid rent, cost of repairs of damage beyond ordinary wear and tear, and the cost incurred due to breach of the lease agreement.

Questions? To chat with a California landlord tenant attorney, Click here

Legal Basics. California landlords can demand a maximum of two months’ rent (three months’ if the unit is furnished) as security deposit from which unpaid rent, and costs of repairs, cleaning and restoration may be deducted. It must be returned within 21 days after the tenant moves out. Otherwise, the landlord may be made to pay a penalty of double the security deposit.

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 you own 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 for both cases: 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:

  1. The tenant has a history of poor credit or of causing damage to property rented; or
  2. 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 entitled to full and equal access to housing. Thus, the tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have 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

Notwithstanding the limit, California landlords can increase the security deposit in the terms of the rental agreement in the following situations:

  1. 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.
  2. 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 and the other rules on holding, using and returning the security deposit discussed below only apply to rental agreements for residential units. They do not apply to the following:

  1. Rent or lease of commercial real property, in which case there is no limit to the security deposit.
  2. 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 following purposes:

  1. Unpaid rent (including the rent owed if the tenant doesn’t provide the landlord with proper notice of moving out);
  2. Cost of repairs for damage caused by the tenant;
  3. Cleaning costs when the tenant vacates the property (only for leases started after January 1, 2003); or
  4. Restoration costs that are provided under the rental agreement.

However, even if they fall under any of the above, the landlord cannot deduct the following from the security deposit:

  1. Cost of repairs for damage that existed before the tenancy was started;
  2. Cost of repairs or restoration for normal wear and tear; or
  3. 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 as a result of the tenant using the property as it was designed to be used. These minor issues can include gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass, dirty grout and even 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.

Check out our article on “wear and tear” vs. “damage” to get a better idea of the difference and visit our state laws page to learn more about other landlord-tenant responsibilities.

Can the deposit be used by the tenant as last month’s rent? Not usually; however, if there is a written agreement between both the parties.

Returning Security Deposits in California

Time Frame: The California landlord has 21 calendar days after the tenant has moved out of the rental property to return the tenant’s security deposit, or what’s left of it. The landlord is not liable to return the security deposit earlier than the following terms:

  1. 60 days before the end of the term of a lease that has a definite term.
  2. 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.

Itemized List of Charges: If there are deductions on the security deposit, the landlord is required to inform the tenant of the basis and cost of the same in an itemized list on a written notice to delivered personally or via first-class mail with prepaid postage, together with the remaining amount to be returned within the same time frame. If the tenant did not provide a forwarding address, the landlord shall mail the written notice to the address of the vacated unit. However, 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.

Copies of documents showing the cost of deductions must also be mailed with the itemized list. The documents can include the following items: receipts for supplies purchased, the invoice/bill for services contracted, or a description of the work done if the landlord’s employees did the work.

If the landlord is not able to provide these documents because they cannot be obtained within the 21 days or the repairs cannot be completed within the same time frame, the landlord can give a reasonable estimate of the costs. If the reason for not providing the documentation is because they are with another person or company, the landlord may include the contact details on the itemized list. The landlord must provide the tenant with the exact costs and the documentation for them within 14 days after the work is completed 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:

  1. The deductions are not more than $126; or
  2. 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). Also, 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.

Questions? To chat with a California landlord tenant attorney, Click here

Security Deposits and Tax Filing in California

How the security deposit will be treated tax-wise depends on whether or not the landlord gets to keep it (or part of 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 if the landlord may still be required to return the same. 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 2020 but was only forfeited in 2021, then the landlord should only include it as income in 2021.

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:

  1. If the deposit is forfeited due to a breach of the lease or applied to unpaid rent, then the amount kept should be declared as income in the year it was forfeited or applied.
  2. If 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.
  3. 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: In California, tenants are entitled to an initial inspection so that they may be able to identify and fix damage in the unit to avoid or minimize deductions on their security deposit. Thus, the landlord is required to inform the tenant of the latter’s option 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 but if the tenant opts to have an initial inspection, the landlord is required to provide the tenant with an itemized statement of the repairs and cleanings the landlord intends to deduct from the security deposit. Note that the landlord is only allowed to include repairs and cleanings that are beyond normal wear and tear. The tenant may choose to rectify those identified in the statement but is not required to.

Interest Payments: California State laws do not require landlords to pay interest on security deposits. However, several cities within California that do. Some of them specify the interest rates, specifically, Los Angeles, West Hollywood and San Francisco. Getting in touch with the city’s rent control board will be the best way to find out if interest payments on security deposits are required in a city.

Non-Refundable Security Deposits: Security deposits in California are always subject to refunds. California law prohibits charging non-refundable deposits. The landlord will always have to return the security deposit or the part of it was not used to cover allowable deductions.

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. As a condition of making the modifications, the landlord may require the tenant to enter into an agreement to restore the interior of the rental unit to its previous condition at the end of tenancy.   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:

  1. Transfer the security deposit, or what is left of it, to the new owner and inform the tenant of such transfer and the details of the new owner (name, address and phone numbers). 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 to get an acknowledgment receipt signed by the tenant. Upon doing so, the old landlord’s rights and responsibilities concerning the security deposit will be transferred to the new owner; or
  2. Return the security deposit to the tenant as the landlord would at the end of the tenancy. The landlord must make the allowable deductions and give the required notices and documentation within the number of days allowed after the termination of the tenancy, except that the days will be counted from the date of sale or transfer of the property.

The landlord must decide on the above before selling the property and inform the buyer, who will be the new owner. Prior to the sale, the landlord must provide the new owner with a written statement containing the following information:

  1. The amount of the security deposit that is left after deductions (if there are any);
  2. An itemized list of deductions made; and
  3. Inform the tenant where there security deposit will be held (if it will be transferred to the new landlord or if it will be returned to the tenant).

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, or what is left of it, at the end of the lease. This means the tenant may recover the full amount that the tenant is entitled to from either collecting the balance from the new buyer if the original landlord does not pay in full, or collecting from both the new buyer and original landlord at the same time.

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.