LANDLORD – TENANT MAXIMUM SECURITY DEPOSIT IN CALIFORNIA THAT LANDLORDS CAN LEGALLY COLLECT

ISSUE: What is the maximum security deposit that California property owners can legally collect after July 1, 2024?

SHORT ANSWER:

For security deposits collected on or after July 1, 2024, the maximum security deposit for a dwelling unit is one month’s rent, regardless of whether the unit is furnished or unfurnished.

There is an exception if the property owner is (1) a natural person or limited liability corporation in which all members are natural persons AND (2) owns no more than two (2) residential properties, that collectively include no more than four (4) dwelling units offered for rent. If the landlord meets this criteria, the maximum security deposit may not exceed two months’ rent, regardless of whether the unit is furnished or unfurnished.

This exception does not apply, however, if the tenant is a service member. The maximum security deposit for service members remains at one month’s rent.

DISCUSSION:

California Assembly Bill 12 (AB 12) was passed by the State Legislature and signed by Governor Newsom on October 11, 2023.  AB 12 was enacted to amend, repeal, and add a section to California Civil Code 1950.5, which governs security deposits statewide.

Prior to July 1, 2024, California property owners had been allowed to collect a maximum security deposit of two months’ rent for unfurnished dwelling units and three months’ rent for furnished dwelling units. AB 12 amended this rule as detailed below.   

General Rule: Effective July 1, 2024

For all new leases signed on or after July 1, 2024, the maximum security deposit that California property owners are allowed to collect (in addition to the first month’s rent) is one month’s rent, regardless of whether the unit is furnished or unfurnished.  Because the change is not retroactive, leases executed before July 1, 2024 remain unaffected.

Civil Code section 1950.5, subdivision (c)(1), provides:

[A] landlord may not demand or receive security, however denominated, in an amount or value in excess of an amount equal to one month's rent, in addition to any rent for the first month paid on or before initial occupancy.

"Security," as defined in Civil Code section 1950.5, refers to any payment, fee, deposit, or charge—excluding application fees—required at the start of tenancy, whether as an advance payment of rent or to cover potential defaults, damages, or cleaning costs (for tenancies beginning on or after January 1, 2003) upon the lease's termination. (Civ. Code § 1950.5, subd. (b).)

It is important to note that the amendment to section 1950.5 did not change the rule stating that the security deposit ceiling includes all forms of deposits.  Thus, any security deposit, whether it is for pets, keys, or other purposes, must be included within the overall limits set by law.  The legislation does not provide for any separate or additional charges that would allow landlords to exceed the cap on security deposits.

Exception to the General Rule: Small Landlords

There is an exception to the one-month maximum security deposit for small landlords who meet specific criteria. Civil Code section 1950.5, subdivision (c)(4)(A), provides:

[A] landlord may not demand or receive security, however denominated, in an amount or value in excess of an amount equal to two months’ rent, in addition to any rent for the first month paid on or before the initial occupancy if the landlord meets both of the following requirements:

(i) The landlord is a natural person or a limited liability company in which all members are natural persons [AND]

(ii) The landlord owns no more than two residential rental properties that collectively include no more than four (4) dwelling units offered for rent.

For purposes of this paragraph, “natural person” includes any natural person who is a settlor or beneficiary of a family trust. “Family trust” means a revocable living trust or irrevocable trust in which the settlors and beneficiaries of the trust are persons who are related to each other as siblings, spouse, domestic partner, child, parent, grandparent, or grandchild. (Civ. Code § 1950.5, subd. (c)(4)(C).)

Thus, under this exception a landlord can charge a security deposit of up to two months' rent, plus the first month's rent, if and only if (1) they are an individual or part of an LLC made up of individuals and (2) they own no more than two rental properties with a total of four units or less.

Exception to the Exception: Service Members

The small landlord exception to the one-month rule does not apply, however, if the prospective tenant is a service member.  In other words, the security deposit limit for service members remains at one month’s rent (plus first month’s rent), regardless of whether the landlord meets the exception’s criteria.  In addition, a landlord may not refuse to rent a unit to a service member due to this restriction on security deposits. Civil Code section 1950.5, subdivision (c)(4)(B), provides, in pertinent part:

A landlord shall not refuse to enter into a rental agreement for residential property with a prospective tenant who is a service member because this subparagraph prohibits the landlord from demanding or receiving a greater amount of security than that which is established in [Civ. Code § 1950.5, subd. (c)(1)].

For purposes of this paragraph, a “service member” means all of the following:

(1) A member of the militia, as defined in Military and Veterans Code section 120, called or ordered into active state or federal service pursuant to Military and Veterans Code section 143 or 146 or federal law. 

(2) A member of an active or reserve component of the Armed Forces who is ordered into active duty pursuant to federal law.

(Cal. Mil. & Vet. Code, § 400.)

Additional Provisions Under Section 1950.5, subd. (c)

Under Civil Code section 1950.5, subdivision (c)(2), if a landlord collects rent in advance, the lease must be for a term of six months or longer and the advance payment cannot cover less than six months of rent. Section 1950.5, subdivision (c)(2), states:

This subdivision does not prohibit an advance payment of not less than six months’ rent if the term of the lease is six months or longer.

Finally, a landlord and tenant can agree to make changes to the property, like structural or decorative alterations, for a fee, as long as the changes are not related to cleaning or repairs that the landlord can already charge the previous tenant for. Specifically, Civil Code section 1950, subdivision (c)(3), provides:

This subdivision does not preclude a landlord and a tenant from entering into a mutual agreement for the landlord, at the request of the tenant and for a specified fee or charge, to make structural, decorative, furnishing, or other similar alterations, if the alterations are other than cleaning or repairing for which the landlord may charge the previous tenant as provided by subdivision (e).

The crux of the amendment is to increase protection for tenants by limiting the amount landlords can charge for security deposits, especially for low-income or subsidized housing tenants. The change aims to reduce financial barriers to housing and promote fairness in rental agreements. On the other hand, these regulations may impose additional burdens on landlords by limiting their ability to mitigate potential damages or non-payment risks. Overall, the changes reflect a balance between tenant protection and landlord rights, but the impact of the change may vary depending on the specific rental dynamics.

EXAMPLE

Maria is a small landlord in California who owns a duplex where she rents out both units. After July 1, 2024, Maria wants to rent out one of the units to a new tenant, John. The unit is unfurnished, and the monthly rent is $2,000.  

Under the new law, if Maria does not qualify for the small landlord exception, the maximum security deposit she can charge John is one month’s rent--$2,000. (Civ. Code § 1950.5, subd. (c)(1).)

However, Maria does qualify for the small landlord exception because:

(1) She is a natural person; and

(2) She owns no more than two (2) residential properties that collectively include no more than four (4) dwelling units.

Therefore, Maria can legally collect a security deposit of up to two months’ rent, which would be $4,000 in this case. (Civ. Code § 1950.5, subd. (c)(4)(A).)

But, if John is a service member, the small landlord exception does not apply. In that scenario, Maria can only collect a maximum security deposit of one month’s rent--$2,000—despite her qualification as a small landlord. (Civ. Code § 1950.5, subd. (c)(4)(B).)

Authored by Attorney Babin