Property Management Blog

What Do Landlords Need to Know About Security Deposits?

Warwick Downs - Wednesday, June 22, 2022

So, your property has suffered damage from a tenant beyond normal wear and tear. What do you do?

A.) Cover all damages out of pocket?

B.) Trust that your tenant will make repairs themselves?

Neither of these is a great solution. Tenants don't own the property and most likely won't perform any major repairs. These damages violate the lease agreement, so you shouldn't have to financially fund repairs.

Luckily, a security deposit can prevent any confusion in this situation. 

Keep reading to learn tips for landlords when concerning security deposits.

Allowed Amount for Security Deposits

Security deposits are usually collected up front when a tenant is moving in. California law dictates how much a landlord can charge for security deposits.

If you are renting an unfurnished residential property, the security deposit cannot exceed 2 times the rent.Furnished properties can have a security deposit of up to 3 times the rent. Deposits for commercial properties have no limit.

When investing in real estate, it's important to keep in mind the amount you're able to have as a security deposit on a property in case of damage. 

What's Covered Under Security Deposit 

Security deposits can only be applied to specific issues involving your real estate investment.

To comply with California law, landlords can only use these deposits to cover significant damages. These damages go beyond normal wear and tear and involve costly repairs.

Security deposits can also be used for fees associated with cleaning a property. This is only applicable when a tenant is moving out. The cost of cleaning is only covered to restore the property to its original level of cleanliness as when the tenant moved in. 

The only non-repair cost landlords can apply security deposits to is unpaid rent.

Returning a Security Deposit

Landlords have an obligation to provide information when returning all, part, or none of a security deposit back to the renter.  If the deposit is being returned in full, landlords have 21 days to do so.

If a deposit isn't returned in 21 days, landlords must personally give or mail several items.

If a security deposit is being returned with reductions, it must be returned with a written letter. This letter must explain any withholdings along with an itemized list of damages. The remainder of the security deposit must be sent with this letter to the tenant.

Landlords must provide copies of receipts for repair materials for each deduction as well. However, landlords don't have to include these receipts if repairs amount to less than $126. Tenants can also waive their rights to view these receipts. 

Extreme Scenarios

Security deposit disputes can be brought to small claims court by either a tenant or a landlord.

Tenants can sue if the security deposit is not returned on time, or if a landlord fails to provide the items listed above. If the landlord and tenant cannot come to an agreement, a tenant can sue for up to twice the original amount of the security deposit. 

If the security deposit doesn't cover the total cost of unpaid rent or repairs, landlords have the right to sue the tenant. Be sure to still provide everything required within the 21 days, however, or you are unable to take legal action.

Security Deposits and You

A security deposit is an important safety net for landlords. It's impossible when finding tenants to 100% predict if a tenant will cause significant damage to your property. Security deposits can help protect your real estate investment from unforeseen needed repairs.

Property managers are a great asset in handling the fine details of renting out a property and can help with legal issues surrounding security deposits.

If you're looking for help staying on top of your real estate investments, contact us for expert help in managing your property.