California Assembly Considering a Bill to Reduce the Deposit a Landlord Can Require
California Assembly Considering a Bill to Reduce the Deposit a Landlord Can Require
By: Thomas K. Turnipseed, Esq.
January 3, 2023
AB 12, introduced by Matt Haney (D-San Francisco), seeks to limit the amount of money landlords can legally require as a security deposit for rental properties. As of the date of this article, AB 12 has not yet been passed by the California Assembly. AB 12 would change California Civil Code Section 1950.5 which currently allows deposits to be up to two months rent for unfurnished residential properties and three times monthly rent for furnished properties.
If passed, AB 12 will make a number of changes to section 1950.5. First and most notably, it caps the amount a landlord can require as a deposit at one month’s rent, significantly reducing the allowable amount compared to the current law. Second AB 12 also removes the distinction between furnished and unfurnished residential properties, applying the same one month’s rent limitations to both kinds of rental properties.
If passed, AB 12 may have a positive impact on tenants by eliminating what the legislature sees as a steep upfront cost that may bar some tenants from being able to enter leases. It has long been a focus of the California State Government to make it easier for people to obtain housing and this law falls in line with that goal. The idea is, by limiting the amount of money a tenant has to front upon signing a lease, the easier it will be for tenants to find properties to rent.
However, these changes should be noted by landlords as they are entering new leases because their rights are significantly affected. The most glaring is that the reduction in the allowable deposit amount will significantly affect a landlord’s ability to place the burden of needed repairs, outside of reasonable wear and tear, on the tenant when the tenant vacates the property. Under current law, security deposits are a cheap and effective method for landlords to recoup at least some of their losses when a vacating tenant caused damage to the property. AB 12, however, would reduce the effectiveness of deposits in offsetting losses by simply reducing the amount of available money. It is also worth noting that a landlord can always sue a tenant in civil court for damage the tenant has caused to the property. However, such a suit is almost always cost prohibitive and barred by a basic cost benefit analysis.
Further, if AB 12 is enacted into law, the bill would limit landlords’ ability to recover unpaid rent upon default. Under current law, a landlord may retain a security deposit to offset unpaid rent. The basic rule does not change under the proposed law. However, since AB 12 limits the allowable amount of a deposit it then also limits the funds available to landlords to easily offset some of their losses upon nonpayment of rent. Again, a landlord always has the option to file suit, but as noted above, these actions are almost certainly against the economic interest of landlords as they will likely spend more than they will recover.
As a general matter, deposit disputes should be something landlords should be concerned about. Under applicable law, including section 1950.5, landlords are subject to rigorous requirements regarding the return of a tenant’s deposit, including, but not limited to, the provision of an itemized list of deductions and the unused portion of the deposit within 21 days of the tenant vacating the property. Tenants are also entitled to a walkthrough of the property to allow them time to fix any issues prior to the damage being taken out of their deposit.
Further, the penalties for not complying with the relevant civil code sections can be rather harsh. For example, a landlord who retains a deposit in bad faith may be liable to the tenant for “statutory damages of up to twice the amount of the security, in addition to actual damages.” In practice Judges seem to be willing to impose these kinds of penalties if there is evidence of bad faith and as such, landlords should be on notice and be sure to jump through the needed hoops when a tenant vacates and is not entitled to the return of all their deposit.
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California Assembly Considering a Bill to Reduce the Deposit a Landlord Can Require
By: Thomas K. Turnipseed, Esq.
January 3, 2023
AB 12, introduced by Matt Haney (D-San Francisco), seeks to limit the amount of money landlords can legally require as a security deposit for rental properties. As of the date of this article, AB 12 has not yet been passed by the California Assembly. AB 12 would change California Civil Code Section 1950.5 which currently allows deposits to be up to two months rent for unfurnished residential properties and three times monthly rent for furnished properties.
If passed, AB 12 will make a number of changes to section 1950.5. First and most notably, it caps the amount a landlord can require as a deposit at one month’s rent, significantly reducing the allowable amount compared to the current law. Second AB 12 also removes the distinction between furnished and unfurnished residential properties, applying the same one month’s rent limitations to both kinds of rental properties.
If passed, AB 12 may have a positive impact on tenants by eliminating what the legislature sees as a steep upfront cost that may bar some tenants from being able to enter leases. It has long been a focus of the California State Government to make it easier for people to obtain housing and this law falls in line with that goal. The idea is, by limiting the amount of money a tenant has to front upon signing a lease, the easier it will be for tenants to find properties to rent.
However, these changes should be noted by landlords as they are entering new leases because their rights are significantly affected. The most glaring is that the reduction in the allowable deposit amount will significantly affect a landlord’s ability to place the burden of needed repairs, outside of reasonable wear and tear, on the tenant when the tenant vacates the property. Under current law, security deposits are a cheap and effective method for landlords to recoup at least some of their losses when a vacating tenant caused damage to the property. AB 12, however, would reduce the effectiveness of deposits in offsetting losses by simply reducing the amount of available money. It is also worth noting that a landlord can always sue a tenant in civil court for damage the tenant has caused to the property. However, such a suit is almost always cost prohibitive and barred by a basic cost benefit analysis.
Further, if AB 12 is enacted into law, the bill would limit landlords’ ability to recover unpaid rent upon default. Under current law, a landlord may retain a security deposit to offset unpaid rent. The basic rule does not change under the proposed law. However, since AB 12 limits the allowable amount of a deposit it then also limits the funds available to landlords to easily offset some of their losses upon nonpayment of rent. Again, a landlord always has the option to file suit, but as noted above, these actions are almost certainly against the economic interest of landlords as they will likely spend more than they will recover.
As a general matter, deposit disputes should be something landlords should be concerned about. Under applicable law, including section 1950.5, landlords are subject to rigorous requirements regarding the return of a tenant’s deposit, including, but not limited to, the provision of an itemized list of deductions and the unused portion of the deposit within 21 days of the tenant vacating the property. Tenants are also entitled to a walkthrough of the property to allow them time to fix any issues prior to the damage being taken out of their deposit.
Further, the penalties for not complying with the relevant civil code sections can be rather harsh. For example, a landlord who retains a deposit in bad faith may be liable to the tenant for “statutory damages of up to twice the amount of the security, in addition to actual damages.” In practice Judges seem to be willing to impose these kinds of penalties if there is evidence of bad faith and as such, landlords should be on notice and be sure to jump through the needed hoops when a tenant vacates and is not entitled to the return of all their deposit.
Recent and Popular Articles From Our Blog:
2022 Blogs:
- Dec 30 – 2022 – A Year In Review
- Nov 15 – New California Law Updates 2022 – Part 1
- 23 – Understanding Private Road Maintenance
- June 27 – The Housing Market is Changing – What does it mean?
- May 10 – Using the 1031 Exchange to Reinvest
2021 Blogs
- June 15 – Pinhole Leaks in Copper Pipes in Folsom
- May 4 – Help! Tenant Won’t Cooperate with Sale of Home
- April 20 – Cash for Keys and SB 91
- March 9 – Understanding the Trust Exception to Real Estate Disclosures
- January 26 – Rain and the Prevalence of Failure to Disclose Claims