Avoid these costly security deposit mistakes

Security deposits have long been a source of disputes between landlords and tenants. While some controversy is unavoidable, landlords can reduce the number of disputes they face - and decrease their risk of liability - by avoiding these mistakes.

Collecting excess deposits: The maximum amount that can be collected as a security deposit is clearly defined by law. Prior to July 1, 2024, landlords may collect up to two months' rent for unfurnished units and three months' rent for furnished units, with a lower cap applying for military service members. Following this date, the limit will be one month's rent for most residential units, unless an exception for "small" landlords applies, which permits up to two months' rent in most cases. This cap includes all deposits, no matter what they are called. For example, it is not permitted to collect a "pet deposit" that would cause the total deposit amounts collected to exceed the legal cap.

Missing the return deadline: Deposits must be returned within 21 days after the tenant vacates, along with a detailed itemized statement if there are any deductions. The deductions can only cover unpaid rent, damages beyond normal wear and tear, and necessary cleaning to return the unit to its initial condition. In limited cases, it is permissible to send an estimated refund so long as it is later followed up with a final disposition, but it is never permitted to ignore the 21-day deadline.

Not providing documentation of deductions: Landlords need to document the state of the property meticulously at move-in and move-out to support any deductions for damages or cleaning. The law requires the landlord to provide copies of documents showing charges incurred and deducted by the landlord to repair or clean the premises, including bills, invoices, or receipts for work done. The law has a limited exception that allows deductions of $125 or less, in total, without providing documentation with the itemization and refund, but even in such cases the landlord must provide the documentation if requested by the former tenant.

Automatic cleaning charges: Deductions from the security deposit for repairs or cleaning may only be made to return the unit to the same condition, exclusive of normal wear and tear, or level of cleanliness it was in at the inception of the tenancy. Having a policy that tenants are always charged for professional cleaning of the unit, or for a service such as carpet cleaning, without regard to whether the service is necessary to return the unit to the same level of cleanliness it was in at the inception of the tenancy is not permitted.

Landlords who do not properly handle the security deposit, including the mistakes discussed above, can face legal penalties, such as being ordered to pay significant sums above the original deposit amount to the tenant. For example, in a recent case, one landlord paid a significant settlement to resolve claims brought by the California Attorney General; the landlord had been automatically deducting cleaning fees irrespective of the actual condition of the units.

The California Apartment Association urges all members to regularly review their practices concerning security deposits to ensure they align with current laws and best practices. For help, consults with CAA's Industry Insights paper, Security Deposits: Collection and Return.