managing SECURITY DEPOSITS

Both landlords and tenants in California must have a firm grasp of the rules governing security deposits. For a landlord, this knowledge ensures the deposit is handled in strict accordance with the law; for a tenant, it clarifies exactly when and how much of their money they should expect to see back. In California, residential security deposits are governed primarily by Civil Code section 1950.5, along with any applicable local ordinances.

First and foremost, if a tenant has made a security deposit, they are entitled to its return. California law prohibits a lease or rental agreement from characterizing security as “nonrefundable.” Further, a tenant’s claim for a refund of security has priority over the claims of landlord’s creditors. In other words, if you have made a security deposit, you are entitled to its return. And if you are a residential landlord, characterizing a security deposit as “nonrefundable” will not allow you to retain the deposit.

Upon a tenant’s vacation of the premises, the tenant is entitled to an itemized statement indicating the basis for, and the amount of, any security received and disposition of said security. Along with that itemized statement, the tenant is entitled to a return of any remaining portion of the security. Both the itemized statement and balance of the security must be sent to the tenant by personal delivery or first class mail, postage prepaid, unless the landlord and tenant mutually agree to another mode of service.

As for what may be deducted, both the tenant and landlord should look to the lease at it should expressly provide the purposes for the deposit. For example, when the deposit is security for the payment of rent, cleaning of premises, or repair of damages caused by the tenant, these items may be deducted by the landlord to the extent reasonably necessary to remedy a tenant’s defaults as to those items. The landlord’s right to deduct is limited to the purposes designated in the lease, so a landlord cannot, for example, make a deduction to repair damages that preexisted the tenancy or for ordinary wear and tear.

Should a landlord fail to adhere to these requirements, the tenant could have a legal claim against the landlord for bad faith retention of the security deposit. Further, should the landlord’s retention be found to be in bad faith, the landlord would be subject to statutory damages which, in addition to the actual damages for retention of the deposit, could amount to up to twice the amount of the security. Thus, it is extremely important for a residential landlord to handle security deposits with care and act diligently in making repairs and deductions immediately after a tenant vacates.

Finally, both landlords and tenants should be aware that some California cities have additional local rules, such as requirements to pay interest on security deposits or stricter timelines and procedures. This guide provides general information and does not constitute legal advice; anyone facing a specific dispute should consult a qualified attorney or local housing agency.

This update is provided to our clients, business associates and friends for informational purposes only. Legal advice should be based on your specific situation and provided by a qualified attorney.