Did You Know? Security Deposit Rules are Changing for Multifamily Landlords
New Security Deposit Rules Coming into Effect in 2024
Signed into law in October of 2023, AB12 affects how much a landlord is allowed to collect for a security deposit. Read on to learn how the rules are changing.
Effective July 1, 2024, significant changes are coming to how security deposits for rental properties are handled in California. As a landlord, it’s crucial to understand these updates to ensure compliance and maintain a good relationship with your tenants. Here’s a breakdown of the key points you need to know about the amended Section 1950.5 of the Civil Code.
What Counts as a Security Deposit?
A security deposit includes any payment, fee, or deposit collected at the beginning of the tenancy. This can cover a wide range of costs such as:
Unpaid Rent: Covering any default in rent payments by the tenant.
Damages: Repairing damages caused by the tenant or their guests, beyond normal wear and tear.
Cleaning: Restoring the property to its original cleanliness at the start of the tenancy.
Future Defaults: Any other specified obligations under the rental agreement.
New Limits on Security Deposits
The new law places strict limits on how much you can ask for as a security deposit for leases signed after July 1st, 2024:
General Rule: You can’t demand more than one month’s rent as a security deposit, plus the first month’s rent. Previously, landlords could ask for deposits equivalent to two months’ rent for unfurnished units or three months’ rent for furnished units.
Exceptions:
Long-Term Leases: For leases of six months or longer, you can request an advance payment of at least six months’ rent.
Tenant-Requested Alterations: If the tenant requests structural or decorative changes, and you both agree, you can charge a specified fee.
Small Landlords: If you’re an individual or small LLC owning no more than two rental properties with up to four units total, you can request up to two months’ rent as a deposit, plus the first month’s rent.
Service Members: Special protections apply, preventing landlords from demanding higher deposits from military service members.
Existing Leases Signed Before July 1, 2024 - Existing leases signed before the new law becomes effective are subject to previous security deposit limits (2 months rent for unfurnished units, 3 months rent for furnished units)
Handling and Returning the Deposit
Holding the Deposit and Interest Payments: The deposit remains the tenant’s property, prioritized over any landlord’s creditors. Landlords must also pay interest each year on any security deposits held - learn more about this in our other blog.
Deductions: You can only deduct for unpaid rent, tenant-caused damages, or necessary cleaning. You cannot deduct for normal wear and tear or pre-existing conditions.
Inspection Rights: Tenants have the right to an initial inspection before the lease ends to address any issues and avoid deductions.
Returning the Deposit: Within 21 days of the tenant moving out, you must provide an itemized statement of any deductions and return the remaining deposit. For deductions over $125, you must provide receipts unless the tenant waives this right.
What Happens if You Sell the Property?
If you sell the rental property, you have two options regarding the security deposit:
Transfer the Deposit: Transfer the remaining deposit to the new owner and inform the tenant.
Return the Deposit: Return the remaining deposit to the tenant, minus any lawful deductions.
Penalties for Non-Compliance
If you wrongfully withhold the deposit, you could face penalties up to twice the amount of the deposit. Tenants can also take you to small claims court if you violate these rules. It’s essential to act in good faith and comply with all requirements to avoid these consequences.
Final Thoughts
Staying informed about these new rules will help you manage your rental properties effectively and legally. Understanding and complying with these regulations not only protects you from penalties but also fosters trust and transparency with your tenants. If you have any questions or need further clarification, consult with us or a legal professional specializing in rental laws.
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