Everything You Need to Know About a Security Deposit

What Should You Know About a Security Deposit?


When you lease or rent property in Los Angeles, landlords collect a security deposit along with the first month of rent. The security deposit is like an insurance policy for landlords. If the tenant damages the property or breaks the lease- the landlord can retain some, or all, of the security deposit to cover their losses.

For tenants, you may not like having the additional upfront expense, especially when you are already paying for a move, and you may need to buy furniture for the new place, but you are just going to have to get use to it, because landlords need some of your hard-earned cash to hold onto to feel safe.

Everything in real estate is negotiable, and so is the security deposit. California State Law addresses the handling of Security Deposits in CA Civil Code 1950.5.

Security Deposit Legal Maximums 

The Legal Maximum Security Deposit in California for an Unfurnished Lease is (2) Month’s Rent. For Furnished leases, the legal maximum is (3) Month’s Rent. However, there is no legal maximum on prepaid rent. Commercial Properties have no limit on security deposits.  

For example, let’s suppose that you rent an unfurnished apartment for $2,000/mo. The legal maximum a landlord can collect as a security deposit is $4,000. The landlord will also want first month’s rent, so the total move-in cost would be $6,000. 

There is no such thing as Non-Refundable Security Deposit in California. Some Landlords will try to charge a “reservation fee” or “holding fee” on a unit or say that a portion of the security deposit is non refundable, while they wait for the new tenant to move in. This is illegal (**cough cough** Barrington Plaza’s $500 holding fee). Unlike rent, which belongs to the landlord, security deposits belong to the tenants. Landlords “hold” the security deposit for the tenant and may only deduct from it for specific reasons, and non-refundable holding fee is not one of them. 

How to Approach Move In With Your Security Deposit in Mind

It is incredibly easy nowadays to take pictures because everyone carries a cell phone, and all the new smart phones have cameras. I recommend that BOTH landlord and tenant take pictures of the condition of the property during move in. Keep the pictures somewhere you can find them later. You may need to refer to them when moving out. The condition of the property when you received it sets the precedent for how the property should be returned. In the event of a disagreement, pictures are worth 1,000 words.

Usually during move in, the tenant requests fixes or ask for permission to make changes. In my experience, I find that New tenants expect everything in their new place to be working and are pickier than long term tenants, especially if they are paying higher rents.

For Move in fixes, try to set a realistic time line for repairs with the tenant, and prioritize the most important things first. The little stuff sometimes just goes away. As a landlord, once a tenant has moved in and is settled, I do not replace consumables like light bulbs, smoke detector batteries, garage remote batteries, or HVAC vent screens but I will make sure the tenant has a fresh set when they move in.

Tenants will often ask for permission to paint the rental the color of their choosing. If you give the tenant permission to paint the unit a new color that is not a neutral such as off white- it may make the unit more difficult to re-rent when the tenant moves out.  Be sure to clarify with the tenant, if you give them permission to paint the unit, who is responsible for painting the unit back to a neutral color at move out.

Another point with move in is changing the locks. Most landlords I know don’t change the locks between tenants. It is not required. I personally have no problem if the tenants want to change the locks- all that I ask is that they notify me and provide me with a copy of the new key. 

Moving Out and Getting Back Your Security Deposit

The move out process begins with the appropriate notice. Some properties in Los Angeles have rent control. Rent control properties have their own move out rules. Evictions too.

*Helpful Post from DCA on Moving out http://www.dca.ca.gov/publications/landlordbook/moving-out.shtml#notices

For regular situations of serving notice to end a month to month tenancy, or moving out at the end of the lease- the landlord must give the tenant a 30 day notice if the tenant has lived in the property less than 1 year, or a 60 day notice if the tenant has been living in the property more than a year. Tenants on the other hand, are only required to give landlords a 30 day notice. Ca Civil Code 1946.1

I recommend for both Landlords and tenants to do a move out inspection 3-14 days prior to the move out date. The Landlord will be able to assess the condition of the unit, and if there are anything they plan to deduct- it gives the tenant the opportunity to remedy the situation themselves first.  Once again, take pictures to document the condition of the way the property was left. If you leave the property in the same condition as you got it, you should expect your entire security deposit back. Lock the property up and return the keys and provide the landlord with your new mailing address, so they can mail you your security deposit check. 

*Helpful Post from DCA on Security Deposit Refunds http://www.dca.ca.gov/publications/landlordbook/sec-deposit.shtml

Tenant’s have been waiting a long time and been looking forward to get their security deposit back- in my experience they expect the entire security deposit returned, so if you know you will be deducting something be very clear. By law, landlords have 21 days to return the security deposit after move out. There is nothing that says the landlord can’t return it sooner.  If the landlord deducts any expenses from the security deposit they must give an accounting of those expenses. A landlord may only deduct from a security deposit for the following reasons:

Legal Reasons For Security Deposit Deduction:

  1. Unpaid Rent
  2. Repairs beyond normal wear and tear
  3. Cleaning (includes disposal of trash) 

What is Normal Wear and Tear?

There is no set definition for normal wear and tear since it can be interpreted so broadly. This can be frustrating. The main idea, is that- as things age and are used, they wear out. Even with the most careful use, wear is inevitable. Therefore, normal wear and tear is the reasonable amount of wear to be expected for the time of use. Keep in mind, that if something was already quite old before you moved in, that should be factored in. For understanding wear and tear- I like to think about tires on a car. If you obey all the rules of the road, new tires should last 50,000 miles or 3-4 years. However, if you are racing and squealing out your tires all the time, those tires may only last one year. 

Let consider some real estate examples. First Paint: Let’s suppose you lived in an apartment for two years and at the end of the lease when you moved out, there were some scuffs and scratches on the walls from foot traffic and bumping furniture. If all that is required is a little touch up painting, this would be ordinary wear and tear. Let’s suppose instead, that this apartment was a no smoking rental, and you smoked inside your apartment anyways for two years straight. When you move out, that apartment has a strong cigarette odor, and the walls have yellowish smoke stains. This is beyond normal wear and tear. Or, lets suppose that you have kids, and the kids were allowed to draw all over the walls. Painting is going to be deducted from your security deposit. 

Lets consider a different example: Carpet. Let’s suppose you moved into your apartment and the carpets were already five years old. They had a few discolored areas and had some excess wear in high traffic areas around the hallways and doors. Three years later you move out, but before you move you have the carpets professionally cleaned. The landlord may not charge you for brand new carpets. It may be true that the carpets do need to be replaced (carpet lasts 8-10 years on average) but that is because of their age, and not because of misuse. No matter how many times a carpet cleaner goes over a patch of old carpet, it is still going to be old carpet. Carpet cleaning isn’t magical and make carpet new again. When it is time to replace the carpet, it is time. 

Let’s suppose instead that the carpet was 3 years old, and you stayed there for 2 years. When you moved in the carpet was in pretty good condition. While you were living in the apartment your children decided to rollerblade inside the house on the carpets when you were not home, and they torn and ripped the carpet in a several different areas. Then you spilled some wine on the carpet and never cleaned it up. Then you carelessly dropped a hot iron from the ironing board and it melted a portion of the carpet. Then a pet urinated on the carpet. That poor carpet. This has gone way beyond normal wear and tear. When you move out expect money from the security deposit to be deducted for replacing the carpet. However, you should not be responsible for replacing the entire carpet with new carpet, as it is 5 years old now. Let’s say that replacing the carpets costs $3,000 – well since it was 5 years old that should be prorated to half, and you should expect about $1,500 to be deducted from your security deposit. 

 You are going to have to use some common sense and judgement to figure out what is normal wear versus something extraordinary. 

Security Deposit Disputes

There are two disputes than can arise with security deposits: the landlord has suffered damage in excess of the security deposit from the tenant and seeks the difference (much more common with commercial leases), or the tenant feels that the landlord has made unlawful deductions to their security deposit and wants money returned (much more common with residential leases).

In most cases, for residential leases, the security deposit is less than $10,000. For civil disputes of $10,000 or less for an individual or $5,000 or less for an LLC, those cases go to small claims court. You may want to go to small claims court anyway even if the security deposit is larger than $10,000, because there are no lawyers in small claims court, which greatly reduces legal fees, and it’s a lot faster to get a trail date and the process is simpler. 

Security Deposit FAQs

Q: What happens to my security deposit once I give it to my landlord?

A: The answer is- you don’t want to know. Most mom and pop landlords spend it, lose track of it, and forget about it, until they get a 30-day notice from the tenant, and then they have to scramble to come up with it before the tenant moves out. If you have had a bad experience with a landlord unfairly withholding your security deposit in the past, I recommend asking the landlord before you rent, how often they keep security deposits from their tenants. Most professionally managed apartments handle security deposits very fairly. 

Q: What happens if the property is sold?

A: What usually happens is the current owner transfers the security deposits to the new owner at time of sale. The new owner would then be responsible for returning the security deposit to the tenants when they move out. Sometimes when a new owner takes over, they ask for increased security deposits (and increased rents too!). 

Q: I don’t know the new mailing address of my tenant who moved out- where do I send the security deposit accounting?

A: All you are required to do as a landlord is mail the accounting to the tenant’s last known address. If the tenant left and did not inform you of their new mailing address then you should mail the accounting to the leased property’s address. Most tenants have the post office forward mail to their new mailing address by filling out a change of address form after they move. If the accounting letter comes back to you marked “undeliverable”, keep it in your records as proof that you attempted to send an accounting. I would try contacting the tenant first by calling or emailing them (if you are on friendly terms) to find out their new mailing address before sending it to their old one.

Q: I have never done an accounting of the tenants security deposit before is there a special form or way to do it?

The burden of proof is on the landlord if there is ever a dispute. So you need to prove if you do deduct something from the security deposit that it was warranted. There are no special forms, I have seen landlords just type something up on a word document on their computer or write a letter by hand. There are some important information that should be on the accounting- 1) Date 2) Property Address 3) Tenant Name 4) the amount of the security deposit 5) any deductions. Deductions should have the amount and a description. 6) Balance of Security Deposit. If you have estimates or bids, for work done or to be done for the deductions those are good to include also. 

Q: I just bought a building and the rental units have low/no security deposits- how do I collect more security deposits?

A: While tenants are on a lease you cannot collect an additional security deposit, however, after the lease term is over, or if the leases are month to month, then you can request an increased security deposit by having the tenant sign a new 1 year lease. 

Q: I have two tenants who are roommates, and one of the tenants is moving out. Do I as landlord need to return half of the security deposit to tenant moving out?

A: No, in a roommate situation, both tenants are responsible jointly and severally- which basically means even though they are each 1/2 of the lease, they are both responsible for all of it. So when one roommate moves out, you should tell that roommate to settle any security deposit issues with their other roommate, because the lease is still continuing if either one of them stays. 

 

Security Deposits can sometimes be complex. I want to simplify it. Please reach out with any questions or concerns by clicking the button below. 

 

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