California Security Deposit Laws in 2025

A Landlord & Tenant’s Guide to California Security Deposit Laws (2024 Update)

If you’re renting or managing property in California, the security deposit is more than just a move-in cost—it’s a carefully regulated part of the rental relationship that’s seen some major changes lately. At Hemlane, where we’ve helped thousands of property owners and tenants navigate rental agreements, we know that confusion over deposits is a top source of disputes.

This guide breaks down California’s security deposit rules, including the big new change effective July 1, 2024, with clear references to state law and practical advice to keep everything fair and legal.

Why Security Deposit Laws Matter

California law (primarily California Civil Code §1950.5) creates a framework for security deposits to protect both parties. For landlords, it’s a financial safeguard against unpaid rent or damages beyond normal wear and tear. For tenants, it’s protection against unfair charges and a guarantee their money will be handled properly. When everyone follows the rules, the move-out process is smoother for all.

Part 1: How Much Can You Charge? The New 2024 Cap

The New Rule (Effective July 1, 2024):
Thanks to Assembly Bill 12 (2023), the standard security deposit limit for nearly all residential rentals in California is now one month’s rent, regardless of whether the unit is furnished or not. This is a significant reduction from previous allowances and is designed to lower upfront costs for renters.

The “Small Landlord” Exception:
There’s an important exception for what the law defines as “small landlords.” A landlord can still charge up to two months’ rent if they meet all of these criteria:

• They are a natural person (or an LLC where all members are natural persons).
• They own no more than two residential rental properties.
• Those properties collectively contain no more than four total dwelling units.

What Changed? The Old Rules:
Before July 1, 2024, California allowed deposits of up to two months’ rent for unfurnished units and three months for furnished units (Civil Code §1950.5(c)). For leases signed before the new law’s effective date, the old limits generally apply unless the tenancy is renewed or renegotiated.

A Quick Reference Table:

Part 2: Best Practices for Handling the Deposit

Collecting the money is just step one. How you manage it is critical for compliance and trust.

1. Hold It in Trust: Deposits are tenant funds, not operating income. They must be held in a separate, interest-bearing bank account for properties with 16+ units, though we at Hemlane recommend never commingling these funds regardless of size.
2. Provide Transparency: Tenants must receive a written notice stating where their deposit is being held (bank name/address). This is often included in the lease agreement.
3. Handle Property Sales Correctly: If you sell the property, the deposit must be legally transferred to the new owner with written notice to the tenant, or refunded to the tenant. Proper accounting here prevents liability for the seller and confusion for the buyer.

Part 3: The Move-Out & Return Process (The 21-Day Rule)

This is where most conflicts arise. California’s timeline is strict to prevent landlords from sitting on a tenant’s money.

The Clock Starts Ticking: Landlords have 21 calendar days after the tenant surrenders the keys and vacates to either:

• Return the entire deposit, OR
• Return the remaining balance with an itemized statement listing each deduction, its reason, and its cost.

What Can You Legally Deduct? (Civil Code §1950.5)

• Unpaid rent.
• Cleaning to return the unit to its original level of cleanliness.
• Repairs for damage that exceeds “normal wear and tear.” This is the key distinction. The California Department of Consumer Affairs defines normal wear and tear as deterioration that occurs from intended use (e.g., slightly worn carpet, faded paint). Damage is from abuse or neglect (e.g., large carpet stains, broken tiles).
• Restoration of altered items (if tenant approval wasn’t obtained).

The Penalty for Getting It Wrong: If a landlord fails to provide a proper, timely itemized statement within the 21 days, they forfeit the right to keep any of the deposit and must return it in full. In cases of bad faith, a tenant can sue for up to twice the deposit amount in statutory damages.

Part 4: The #1 Tool to Avoid Disputes: The Move-In/Move-Out Inspection

At Hemlane, we insist our clients conduct thorough inspections. Documentation is your best defense.

• Schedule a Walk-Through: Offer the tenant a pre-move-out inspection (Civil Code §1950.5(f)) to identify potential deductions before they leave. This gives them a chance to address issues.
• Use a Detailed Checklist: Document everything with photos/video and written notes. Date-stamped photos are invaluable. A tool like Hemlane’s property management software helps store this documentation securely alongside the lease.
• Get Signatures: Have both parties sign the inspection report. This creates a shared, factual record of the unit’s condition.

Part 5: Special Considerations & Pro-Tips

• Tenants with Disabilities: Under the Fair Housing Act and California’s FEHA, a security deposit cannot be increased for a service or support animal. Reasonable modifications made by the tenant are also not deductible, though landlords can require the tenant to restore the unit if modifications affect future use.
• Taxes (For Landlords): The IRS doesn’t consider the deposit income when you receive it. However, if you retain any portion at move-out (for rent or damages), that amount becomes taxable income for that year and may require issuing a 1099 form to the tenant. Always consult a tax professional.
• Disputing a Deduction: Tenants who disagree with deductions should first write a polite, evidence-based letter to the landlord (certified mail is best). If unresolved, they can file a claim in small claims court (for amounts up to $12,500). Bringing photos, the lease, and inspection reports is crucial.

The Bottom Line

Whether you’re a landlord protecting your investment or a tenant safeguarding your money, understanding these rules is non-negotiable. The recent law change (AB 12) makes it even more important to:

1. Know the new limit (1 month’s rent, with exceptions).
2. Document obsessively at move-in and move-out.
3. Respect the 21-day deadline religiously.
4. Communicate clearly and in writing.

Disclaimer: This article is for informational purposes and does not constitute legal advice. California rental laws are complex and can vary by city (like Los Angeles or San Francisco’s local ordinances). For specific legal concerns, always consult with a qualified California attorney or refer directly to the California Civil Code and resources from the California Department of Real Estate.

About Hemlane: Hemlane provides professional property management tools and services designed to help landlords manage their rentals efficiently and compliantly, while offering a transparent experience for tenants. Our platform is built with California’s evolving laws in mind, helping owners automate tasks like lease generation, rent collection, and maintenance tracking—all to reduce the risk of disputes over things like security deposits.