A residential landlord’s guide to security deposits in California

On Behalf of | Oct 9, 2019 | Firm News | 0 comments

Renting a residential property you own to other people can be a lucrative source of mostly passive income. Unfortunately, it can also be a big source of liability, expense and hard work. If you wind up with the wrong tenants in your building, they could cause extreme levels of damage to both the cosmetic appearance of the unit and also the structural safety of the building, in some cases.

To reduce the amount of risk you take on when you accept a new tenant, you have the right to charge a security deposit. This deposit is an amount that you as the landlord hold in escrow until the tenant leaves the property. The security deposit protects you against defaults that result from unpaid rent or damages to the property.

There are limits to how much you can charge

The amount of the security deposit you can require on any given rental unit relates directly to the monthly rental charge for the facility. For a standard, unfurnished dwelling unit, you have the right to charge as much as twice the montly rent for a security deposit.

In the event that you furnish the apartment for your tenants, you can charge them three times the monthly rent for the deposit. Knowing this limit is important, as it can protect you from overextending yourself financially on the improvements or furnishings that you supply for your rental units.

What are the rules about returning a security deposit?

Although it can feel unpleasant to have to turn over a large sum of money to tenants as they move out, technically, the security deposit belongs to them. You are merely holding the funds in the event that they incur charges that they do not pay for in a timely manner.

To retain any of the security deposit, you must provide an itemized list of damages and the remainder of the deposit to the tenant within 21 days of their leaving the property.

What can you spend a security deposit on?

It is standard for landlords to perform an inspection when tenants move out and compare the condition of the unit at that time to the condition it was in when the tenant initially moved in. Standard aging, as well as the wear and tear that one would expect from the amount of time that has passed, are not costs that you can pass on to a tenant.

However, if they caused verifiable damage to the unit, such as staining of the carpet, damage to the interior walls caused by smoking or a lingering smell that requires abatement, you can likely take the cost of addressing those issues out of the security deposit. If the tenant vacates the property in violation of the lease or without paying rent for their last month, you may take those costs out of the security deposit as well.

Following security deposit law will help you build an excellent reputation as a landlord. It will also help you protect the investments you make in the properties you purchase and maintain.