Key Takeaways

• Confirm whether your rental qualifies for California’s small-landlord exception before setting the security deposit amount in a new lease.
• Keep dated photos, inspection reports, and repair invoices to support any deductions you make from a tenant’s security deposit versus what is wear and tear.
• Schedule the pre-move-out inspection with proper written notice so tenants have an opportunity to address eligible issues before leaving.
• Track the 21-day deadline for returning the remaining deposit and providing the required itemized accounting after the tenancy ends.

Non-Refundable Security Deposits

In California, landlords cannot charge non-refundable security deposits as it is illegal to do so. According to state laws and regulations, all security deposits except the rent are refundable at the end of the tenancy.

Storing a Tenant’s Security Deposit

Landlords are the ones responsible for storing and managing security deposits during the term of the lease or rental agreement. However, California law does not have any specific guidelines that landlords must follow to store the deposit. So, they can store the security deposits anyhow they want, including earning security deposit interest.

Security Deposit Receipt

In comparison with other states, California does not require landlords to provide their tenants with a deposit receipt after collecting the deposit, as outlined in the lease or rental agreement. A landlord may want to keep documentation of it, but it is not mandatory. That said, make sure to treat all tenants fairly and equally when it comes to security deposit handling.

Reasons to Withhold a Tenant’s Security Deposit

There are certain situations under which the California security deposit laws allow landlords to withhold a deposit. The landlord can intend to hold the security deposit for some of these scenarios:

• If the tenant defaults on rent. 
• If the tenant causes excessive damage. 
• If the tenant fails to restore the rental unit to a reasonable condition.
• If the tenant falters in making utility payments. 

However, make sure that, as a landlord, you obey the California landlord-tenant laws when withholding any security deposits from your tenants, such as providing an itemized statement of deductions. Failing to provide a valid reason or itemized statement for withholding a security deposit can lead to the tenant taking legal action against you.

In such cases, the tenant may file a claim in small claims court, where you could be required to provide a security deposit return along with potential additional fees and damages. Ensuring a proper process for returning security deposits in small claim court is essential to avoid legal complications and maintain a good relationship with your tenants.

Normal Wear and Tear vs. Damage

Normal wear and tear refers to the gradual deterioration of the personal property over time. Below are some examples of normal wear and tear: 

• Rusted appliances
• Chipped or scratched furniture
• Worn carpet
• Faded paint
• Loose doorknobs
• Cracks in grout or caulk
• Scuffed floors. 

On the other hand, damage results from the tenant’s negligence or deliberate actions to your personal property. The following are some examples of this type of damage:

• Burned furniture
• Pet urine stains
• Wall graffiti 
• Stained carpets
• Broken windows
• Holes in the walls

To avoid potential disputes, the lease agreement should clearly define what constitutes normal wear and tear versus tenant-caused damage

Right to a Walk-Through Inspection

As a landlord in California, you have the right under the state's security deposit law to perform a walk-through inspection before a tenant moves out, especially in the case of an eviction, as outlined in the lease or rental agreement. This inspection helps you identify whether the repairs are to be covered by security deposits or need to be brought to the tenant’s attention.

To conduct the initial inspection, the following conditions must be met:

• A landlord must let the tenant know that they intend to conduct the inspection within a reasonable time.
• The landlord must have the inspection no sooner than 2 weeks before the tenancy ends if their renter agrees to do so.
• As a landlord, you ought to give the tenant 48 hours (about 2 days)’ written notice before conducting the inspection. 
• You, as the rental unit owner, have to present the tenant with a list of any repairs needed before they move out.

Returning the Tenant’s Security Deposit

California landlords have 21 days to return their tenant’s lawfully remaining security deposit once they have vacated their rented premises. You must include the following information in the notice:

• The security deposit amount you received when the tenant moved in.
• The list of deductions to the security deposit along with an itemized statement explaining the deductions made.
• A good faith estimate of the repairs that are yet to be done. 
• The portion of the security deposit that you’re returning to the tenant.

Sale of the Rental Property

A landlord may want to sell their rental unit for varied reasons. 

If a landlord sells while a tenant is occupying it, they have two options to consider:



• One of the options is to transfer the security deposit to the incoming landlord. After you’ve done this, the new landlord will need to notify the tenant of their contact details and of any deductions on their security deposit. 
• The other option is to return the tenant's deposit, without any deductions, to the tenant. The upcoming landlord must be notified of the security deposit amount you’ve returned to the tenant, and any deductions you’ve made.

Conclusion 

If you require tenants to pay a security deposit, it is mandatory that you conform to the CA Civic Code. If you have a question or need help in managing your rental, C&C Property Management can help. 

At C&C Property Management, we pride ourselves on providing residential property owners with tailored property management services. Get in touch to learn how we can help you enhance your property!

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.

Frequently Asked Questions

Can I Increase a Tenant’s Security Deposit When Renewing a Lease?

We recommend reviewing California’s current deposit limits and the terms of the existing rental agreement before requesting any increase. The applicable rules can depend on whether the tenancy is continuing, whether the proposed increase is legally permissible, and whether the property qualifies for an exception to the standard deposit cap.

A security deposit increase should not be treated as an automatic part of a lease renewal. Before collecting additional funds, we recommend confirming compliance with current state law and obtaining legal guidance if the situation is unclear.

What Should I Do if Repair Costs Exceed the Security Deposit?

When documented, legally deductible repair costs exceed the deposit, we recommend providing the required itemized accounting and supporting documentation within California’s applicable deadlines. A security deposit does not necessarily limit a landlord’s ability to pursue additional amounts legally owed, but recovering those costs may require separate action and adequate evidence.

Keep invoices, photographs, inspection records, and relevant communications organized. Before pursuing a claim, evaluate the nature of the damage, the property's condition before the tenancy, and the legal basis for seeking additional compensation.

Do California Security Deposit Rules Apply to Short-Term Rental Properties?

The rules that apply can depend on the type of accommodation, the length and nature of the occupancy, and whether the arrangement falls within California’s landlord-tenant laws. Traditional residential rental agreements generally fall under the state's security deposit framework, while certain transient lodging arrangements may be treated differently.

We recommend reviewing the specific occupancy arrangement before collecting or retaining a deposit. Owners operating furnished rentals or short-term accommodations should confirm which state and local requirements apply rather than assuming that rules for conventional residential leases cover every situation.

How Should I Handle a Security Deposit if One Roommate Leaves but the Lease Continues?

When one tenant leaves but the rental agreement continues with other named tenants, we recommend reviewing the lease and documenting any approved change to the tenancy. The departure of one roommate does not automatically mean the landlord must return that person's share of the security deposit immediately.

The outcome depends on the existing agreement, any replacement-tenant arrangement, and applicable law. Clearly documenting who remains responsible for the lease and how the deposit will be handled can help avoid disputes when the entire tenancy eventually ends.

What Records Should I Prepare Before Selling a Rental Property With an Existing Tenant?

Before selling an occupied rental, we recommend reconciling the security deposit balance, reviewing the lease, and organizing payment records and any documented deductions. California law provides procedures for transferring a tenant’s security deposit to a successor landlord or returning it, along with applicable accounting and notification requirements.

The purchase agreement should clearly address who is responsible for the deposit and how the transfer will be documented. Coordinating these details with the transaction professionals can help prevent accounting discrepancies and disputes after ownership changes.