California Limits Collection of Security Deposits in Residential Leases to One Month of Rent Under Assembly Bill 12 (AB 12)

            Governor Gavin Newsom has now signed AB 12, changing laws related to residential tenancy and security deposits. The amendments to California law concerning security deposits will become effective next year. No longer will landlords have authority to obtain two months of rent as a security deposit or three months of rent for furnished rental properties. Starting July 1, 2024, landlords can only receive a security deposit equal to one month of rent.

Importantly, there are exceptions. Landlords are exempt if they meet both requirements:

• are natural persons or a limited liability company in which all members are natural persons; and
• own two or fewer properties with no more than four units offered for rent.

            The bill repeals the old California Civil Code Section 1950.5 and adds a new version of the same statute effective July 1, 2024. Landlords that are exempt can demand a security deposit for two months’ rent in addition to rent for the first month. As usual, there is an exception to the exception (because the legislature likes to keep things simple!)—no landlord is exempt from the new law if the prospective tenant is a service member. See Civil Code Section 1950.2(4)(B).

            The law’s goal is to allow renters a higher likelihood to secure housing. Surveys have shown more than half of California renters cannot afford large security deposits despite having the financial capacity to pay monthly rent. Like the current version of Civil Code 1950.5, the new law also includes the rules and procedures concerning return of a security deposit when a lease is terminated or the tenant vacates the premises, including the landlord’s need to provide an itemized statement indicating the basis and amount of the security deposit retained by the landlord.

            The housing crisis in California continues to require more legislation. And many recent state-mandated statutes (concerning Streamlining Permits and Development—SB 9, SB 6, AB 2011, AB 2234, AB 2295; Density—AB 682, AB 1551, AB 2334; Accessory Dwelling Units (ADUs)—AB 2221, SB 897, AB 916) have been used to develop real estate and increase housing opportunities for California residents. But will the new revision to Civil Code 1950.5 help the housing problem or does it only further diminish landlord rights in California? Landlords will now need to overcome additional hurdles if tenants cause damage to a rented house, condominium, townhouse, or unit in an amount that exceeds the smaller one-month security deposit. While landlords have legal rights to pursue tenants under lease provisions, statutes, and other California case law authority, fees and expenses of doing so may be enough of a deterrent to leave landlords “holding the bag” and uncompensated for repairs or replacements that must be incurred before reletting their property.

            Contact an experienced landlord tenant and real estate attorney with questions. California landlord tenant law is complex and difficult. It must be approached prudently and strategically. Failing to know the law can result in oversights or mistakes that may be more costly than the problem itself.

            Author Ethan Birnberg is a business attorney licensed in California, Nevada, Colorado, and Wyoming and recent voted the “Best Attorney” in Truckee and North Lake Tahoe. He regularly assists clients with landlord/tenant matters, all types of asset sales, acquisitions, and real estate issues and HOA disputes. He holds dual certifications as a business bankruptcy and consumer bankruptcy specialist from the American Board of Certification, and has extensive insolvency experience helping entities seeking to restructure under chapter 11 of the U.S. Bankruptcy Code, borrowers and lenders seeking out-of-court workouts, representing chapter 7 trustees, and advising directors, officers, and executive management regarding fiduciary duties and corporate governance issues. You can reach him at birnberg@portersimon.com.

Porter Simon Law is a full-service law firm with attorneys licensed in California, Nevada, Colorado, and Wyoming. Its personal injury practice is called Porter Simon Sierra Injury Lawyers. Its lawyers have decades of experience representing clients in and around Truckee, Tahoe Donner, Tahoe City, Carnelian Bay, Dollar Point, Kings Beach, Tahoe Vista, Hobart Mills, South Lake Tahoe, Meyers, Homewood, Incline Village, Crystal Bay, Portola, Graeagle, Calpine, Downieville, Whitehawk, Loyalton, Sierraville, Nevada County, Placer County, Placerville, Granite Bay, Rocklin, Sierra County, El Dorado County, San Joaquin County, Madera County, Mono County, Mammoth Lakes, June Lake, Bridgepoint, Washoe County, Douglas County, Elko County, Reno, Carson City, Gardnerville, Roseville, Sacramento, Auburn, Chico, Oroville, Healdsburg, Santa Rosa, Elk Grove, Markleeville, Gardnerville, Carson City, Fairfield, Fresno, Folsom, Redding, Walnut Creek, Santa Clara, Stockton, Sonora, Manteca, Merced, Nevada City, Grass Valley, Newcastle, Turlock, Tracy, and Yuba City.