California Civil Code 1950.5 outlines the rules you must follow regarding a security deposit including the amounts you may charge, when you can use the funds, and when you must return them to a tenant.  You should familiarize yourself with California’s security deposit laws because failure to follow them will not only cause you unnecessary headaches but could also land you in court.   The following are the basics you need to know to stay in compliance with the law.

What is a security deposit?

A security deposit is collected to protect landlords from bad, careless or negligent tenants.  They are there to provide some financial protection in case a tenant does something that costs you money, such as damages your property or fails to pay rent.  There are many types of security deposits you can collect, such as “pet deposit,” “cleaning deposit,” or deposit for “last month’s rent,” however, it is important to note that California does not allow you to designate any deposit as “non-refundable.”  (Yes, even pet deposits!)

Is there a limit to what you can charge?

Yes, California caps the amount of money you can collect for a security deposit.  You are allowed to collect up to two months rent total for an unfurnished property and up to three months rent total for a furnished property.  You can break the deposit down and categorize it however you choose, but the sum of all deposits you collect cannot exceed these limits. For example, if you charge $1500 a month for an unfurnished unit you could collect a pet deposit, a cleaning deposit and a deposit for “last month’s rent,” but the sum of them together may not exceed $3,000, the amount of two month’s rent.

When can you legally keep a portion of the deposit?

California law allows you to keep a security deposit or portion thereof to reimburse you for:

  • costs associated with processing a new tenant
  • for an advance payment of rent
  • for any purpose, including, but not limited to:unpaid rent
  • damage over normal wear and tear
  • cleaning costs to restore the condition to that it was at move-in
  • and to fix damaged personal property.

However, having a valid reason to keep the deposit is only the first step.  No matter how justified you are in retaining a portion of the deposit you are still required to provide the proper documentation within 21 else you risk forfeiting the entire amount.

Read: What is normal wear and tear.

California requires you offer a pre-move out inspection

Within a reasonable time before the end of the lease, you must give your tenant written notice of their right to request a pre-move out inspection.  If your tenant does request a pre-move out inspection, it must be done not more than two weeks before they move out. (And remember, although it is a tenant-requested visit you must still give the required 48-hour notice before you enter the property unless they waive notice.  (See Landlord’s Right to Enter a Rental Property in San Diego).  After the inspection, you must provide the tenant an itemized statement identifying what cleaning and repairs you plan to do that will result in security deposit deductions if the tenant does not take care of them themselves before they move out.

When must you return the security deposit or itemized statement of deductions?

You have 21 days from the date of move out (when you retake possession) to return a tenant’s deposit either personally, by first-class mail, or electronically if both you and the tenant agree. If you withhold any portion of the security deposit, you must provide an itemized list of the deductions with receipts unless the repairs and cleaning combined do not total more than $125.

Third Party completed repairs.

If you paid a third party to clean or repair the property, you must not only provide a copy of the invoice or receipt, but you must also give the name, address, and telephone number of the person or entity who did the work if the bill does not include that information.

You completed the repairs

If it was you or your employee who cleaned or repaired the property the itemized statement must “reasonably describe the work performed and included the time spent and the reasonable hourly rate charged.”

Not able to complete repairs within 21 days:

California recognizes that sometimes it is not feasible to complete the work that needs to be done within 21 days.  If you cannot reasonably complete the work within 21 calendar days after the tenant has vacated, or if you do not have the invoices, bills or receipts within 21 calendar days after the tenant has left the premises, you are allowed to deduct the amount of a good faith estimate of the charges you expect to incur and provide that estimate with the itemized statement. However, once you can do the work or receive the bill(s) you have 14 calendar days to deliver them to the tenant.

What happens if you don’t timely return the deposit?

As discussed above you must return the security deposit or provide documentation backing up your reasons for keeping it within 21 days or the tenant can initiate legal action against you.  Before the tenant files a lawsuit, they should first send you a letter demanding you return their deposit. Once you receive a demand letter, you have 14 days to return the deposit or provide the itemized statement and receipts or else they can sue you in small claims court.  The law allows the tenant to recover the entire amount of the deposit and their legal fees, in addition to punitive damages of twice the amount of the deposit if the court finds you acted in bad faith by not returning the deposit on time.

What should you do with the deposit in the event you sell a tenant-occupied property?

If you sell your property while it is tenant-occupied, you are still liable for returning the security deposit at the end of the lease, unless you return it to the tenant at the time of the sale or give the tenant written notice that you transferred the security deposit to the new owner.  The written notice must include the name, address, and telephone number of the new owner. Failure to provide such notice could keep you on the hook for returning the security deposit at the end of the lease term even if you transferred it to the new owner.

Conclusion

California law is very clear when it comes to how much you can collect as a security deposit and the time in which you have to return it.  Get into the habit of keeping meticulous records and returning security deposits as soon as practicable. It is not worth the headache of having to defend yourself in court simply because you failed to return a deposit in time.

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