CALIFORNIA LANDLORDS – Chapter 4, Security Deposits

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Security Deposits?

Disclaimer

This article is intended to be a general discussion only, and should not be considered legal or real estate advice. Your use of it does not create either an attorney-client or broker-client relationship. Any liability that might arise from your use or reliance on this article, or any of its links, is expressly disclaimed. This blog is not legal, real estate, loan, accounting or tax advice, and is not to be acted on as such, it was outdated the moment it was written, and is subject to change without notice. If you are dealing with a potential problem with your investment property you are advised to retain the appropriate licensed professional. This article is not meant to apply to a rent controlled area in which special rules may apply.

INTRODUCTION

As you read this article keep in mind that it was written for the owners of property located in the State of California. This is critically important because state statutes, case law, and public policies can vary widely from state to state.

If you are an absentee owner who has decided to manage your own property it’s best you thoroughly familiarize yourself with the territory. This serialized blog is an attempt to identify at least some of the potentially serious issues faced by an inexperienced owner.  Hopefully it will give you a starting point for your research.

SECURITY DEPOSITS IN GENERAL

Most owners will collect a “security deposit” at the beginning of a tenancy. This security deposit can be used by the owner in a variety of ways. For example:

  • If the tenant moves out owing rent, that amount can be deducted from the security deposit.
  • If the rental property is damaged beyond what a reasonable person would consider normal wear and tear, the cost of the repair can be deducted from the deposit.
  • If the unit is left less clean than it was at the start of the tenancy the cost of cleaning can also be deducted from the deposit.
  • If Items of personal property aren’t restored or returned (i.e. keys or furniture) then the cost of replacement or restoration can be deducted from the security deposit.

Although, as noted above, an owner can, under certain circumstances, deduct costs from a tenant’s security deposit a lease or rental agreement cannot state that a security deposit is nonrefundable and cannot normally require that a security deposit must be paid in cash.

Unless one of the conditions is met the landlord must return the entirety of the security deposit at the end of the tenancy.

It should also be noted that there are limits on what can be required as a security deposit.

For furnished units the security deposit may not exceed an amount equal to three times the monthly rent, unless there is a waterbed present, then the maximum amount of the security deposit may be increased up to 3.5 times the monthly rent.

For unfurnished units the security deposit may not exceed 2 times the monthly rent and again if a waterbed is present the maximum amount is increased by ½ of the monthly rent. In addition to a security deposit a landlord may also require the advance payment of the first month’s rent.

A fair question to ask is whether or not a landlord may be required to pay the tenant interest on the security deposit. The answer is, of course, “maybe”. While, as of this writing, there is no state law requiring landlords to pay interest on security deposits, some, if not most of the local rent control laws do. So, if the property is located in a rent controlled area it would be a good idea to call the appropriate city rent control board for clarification.

The process of refunding all or part of a security deposit is covered in Chapter 5.

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DISCLAIMER

This article is intended to be a general discussion only, and should not be considered legal or real estate advice. Your use of it does not create either an attorney-client or broker-client relationship. Any liability that might arise from your use or reliance on this article, or any of its links, is expressly disclaimed. This blog is not legal, real estate, loan, accounting or tax advice, and is not to be acted on as such, it was outdated the moment it was written, and is subject to change without notice.  If you are dealing with a potential problem with your investment property you are advised to retain the appropriate licensed professional.