Question: When is it legal for a landlord to keep the tenant’s security deposit?

 Answer: The landlord may make reasonable deductions from the tenant’s security deposit, which need to be accounted for.

A source of recovery

The security deposit provides a source of recovery for money losses incurred due to a default on obligations agreed to in the rental or lease agreement. Tenant monetary obligations include:

  • reimbursing the landlord for expenses incurred due to the tenant’s conduct;
  • maintaining the premises during occupancy; and
  • returning the premises in the same level of cleanliness as existed at the time possession was initially taken, less ordinary wear and tear.

Residential security deposits are limited to:

  • two months’ rent for unfurnished units; and
  • three months’ rent for furnished units. [Calif. Civil Code §1950.5(c)]

A residential landlord may also collect one month’s advance rent. For residential rentals, the first and last month’s rent are legally recharacterized as the first month’s rent and a security deposit equal to one month’s rent.

Landlords often try to “mask” refundable security deposit funds by giving them names like “nonrefundable deposit,” “cleaning charge” or “last month’s rent.” However, any advance of funds in excess of the first month’s rent, screening fees and waterbed administrative fees — no matter how characterized by the residential landlord — are classified as security deposits and are subject to the same limits. [CC §§1940.5; 1950.5(b), (c); 1950.6]

Editor’s note — The residential landlord has limited authority to also demand and collect a pet deposit as part of the maximum security deposit allowed if the tenant is permitted to keep one or more pets in the unit. However, the total advance funds, including the pet deposit, may still not exceed the security deposit limits. [CC §1950.5(c)]

Reasonable deductions

Reasonable deductions from a residential tenant’s security deposit include:

  • any unpaid rent, including late charges and bounced check charges;
  • recoverable costs incurred by the landlord for the repair of damages caused by the tenant;
  • cleaning costs to return the premises to the level of cleanliness as existed when initially leased to the tenant, less wear and tear; and
  • costs to replace or restore furnishings provided by the landlord if agreed to in the lease. [CC §§1950.5(b); 1950.7(c)]

The landlord may not deduct from a tenant’s security deposit the costs they incur to repair defects in the premises which existed prior to the tenant’s occupancy. To best avoid claims of pre-existing defects, a joint inspection of the unit and written documentation of any defects is completed before possession is given to the tenant. [CC §1950.5(e); See RPI Form 560]

Further, the landlord may deduct future rents from the security deposit to remedy future defaults under the lease (e.g. when the tenant moves out before the lease is up) as long as it is authorized under the rental agreement. [Calif. Civil Code 1950.5(b)(4)]

Inspection to avoid deductions

A residential landlord is to notify a tenant in writing of the tenant’s right to request a joint pre-expiration inspection of their unit prior to the tenant vacating the unit. The purpose for the joint pre-expiration inspection, also called an initial inspection, is for residential landlords to advise tenants of the repairs or conditions needed to avoid deductions from the security deposit.

However, unless the tenant requests an inspection after receiving the notice, the landlord and their agents are not required to conduct an inspection or prepare and give the tenant a statement of deficiencies before the tenancy expires and the tenant vacates. The notice requirement does not apply to tenants who unlawfully remain in possession after the expiration of a three-day notice to pay/perform or quit.

When a residential tenant requests the pre-expiration inspection in response to the notice, the joint pre-expiration inspection is to be completed no earlier than two weeks before the expiration date of:

  • the lease term; or
  • a 30-day notice to vacate initiated by either the landlord or the tenant. [CC §1950.5(f)(1); See RPI Form 567-1]

Ideally, the notice advising the tenant of their right to a joint pre-expiration inspection is given to the tenant at least 30 days prior to the end of the lease term. This allows the tenant time to request and prepare for the inspection and time to remedy any repairs or uncleanliness the landlord observes during the inspection. Thus, the tenant has enough time to avoid a security deposit deduction.

Notice of entry before inspection

When the landlord receives the tenant’s oral or written request for a pre-expiration inspection, the landlord serves a written 48-hour notice of entry on the tenant stating:

  • the purpose of entry as the pre-expiration inspection; and
  • the date and time of the entry.

When the landlord and tenant cannot agree to the date and time of the inspection, the landlord may set the time. However, if a mutually acceptable time for the inspection is within 48 hours, a written waiver of the notice of entry is to be signed by both the landlord and tenant. When the waiver is signed, the landlord may proceed with the inspection. [CC §1950.5(f)(1); See RPI Form 567-2]

On completion of the joint pre-expiration inspection, the landlord gives the tenant an itemized statement of deficiencies. In it, the landlord specifies any repairs or cleaning which need to be completed by the tenant to avoid deductions from the security deposit. [See RPI Form 567-3]

Additional deductions possible

The completion of a pre-expiration inspection statement by the landlord does not bar the landlord from deducting other costs from the security deposit for any damages:

  • noted in the joint pre-expiration inspection statement which are not cured;
  • which occurred between the pre-expiration inspection and termination of the tenancy; or
  • not identified during the pre-expiration inspection due to the tenant’s possessions being in the way. [CC §1950.5(f)]

Within 21 days after a residential tenant vacates, the residential landlord is to:

  • complete a final inspection of the premises;
  • refund the security deposit, less reasonable deductions; and
  • provide the tenant with an itemized statement of deductions taken from the security deposit. [CC §1950.5(g); See RPI Form 585]

Tracking security deposit deductions

Security deposits are held by the landlord as impounds. The funds belong to the tenant who advanced them and are to be accounted for by the landlord. [CC §1950.5(d); CC §1950.7(b)]

The landlord is to attach copies of receipts, invoices and/or bills to the itemized statement showing charges incurred by the landlord that were deducted from the security deposit. [CC §1950.5(g)(2)]

When repairs by the landlord are not completed and the costs are unknown within 21 days after the tenant vacates, the landlord may deduct a good faith estimated amount of the cost of repairs from the tenant’s security deposit. This estimate is stated on the itemized security deposit refund statement, which discloses the name, address and telephone number of any person or entity providing repair work, materials or supplies for the incomplete repairs. [CC §1950.5(g)(3)]

Then, within 14 days after completion of repairs or final receipt of bills, invoices or receipts for the repairs and materials, the landlord is to deliver to the tenant a final itemized security deposit refund statement with attached receipts and invoices. [CC §1950(g)(3)]

The landlord does not need to provide copies of receipts, bills or invoices for repair work or cleaning to the tenant when:

  • the total deduction from the security deposit to cover the costs of repairs and cleaning is equal to or less than $125; or
  • the tenant signs a waiver of their right to receive bills when or after notice to terminate their tenancy is given. [CC §1950.5(g)(4)]

A residential landlord who, in bad faith, fails to comply with security deposit refund requirements is subject to statutory penalties of up to twice the amount of the security deposit. Additionally, the landlord is liable to the tenant for actual money losses the tenant incurs for the wrongful retention of security deposits. [CC §1950.5(l)]