Security deposits are one of the most regulated areas of California landlord-tenant law, and they are also one of the areas where rental property owners make the most mistakes. Some of those mistakes are minor and easily corrected. Others can result in the owner forfeiting the entire deposit, even when the tenant caused real damage to the property.
The rules changed significantly in 2024 with the passage of AB 12, and many owners are still operating under assumptions that are no longer accurate. This post covers what California law actually requires, how the new deposit caps work, what you can and cannot deduct, and the most common mistakes that cost owners money.
The New Deposit Cap Under AB 12
Effective July 1, 2024, Assembly Bill 12 changed the maximum security deposit a landlord can collect in California. For most rental properties, the cap is now one month’s rent, regardless of whether the unit is furnished or unfurnished. Before AB 12, landlords could charge up to two months’ rent for unfurnished units and up to three months’ rent for furnished units. That is no longer the case for most owners.
However, there is an important exemption that many owners are not aware of. Landlords who own no more than two residential rental properties with a combined total of no more than four units are exempt from the one-month cap. These smaller landlords can still collect higher deposits, though the old limits of two months for unfurnished and three months for furnished still apply.
This exemption matters in markets like Chico, where many of our owners at Blue Oak have one or two rental properties. If you fall into that category, you have more flexibility on deposit amounts than you may realize. That said, most of our owners collect one month’s rent as a standard practice because it simplifies the process and is competitive with the market.
If you are unsure whether the exemption applies to you, the key factor is how many residential rental properties you personally own, not how many units a single property contains. An owner with a single fourplex is within the exemption. An owner with three separate single-family rentals is not.
The 21-Day Rule Is Not a Suggestion
After a tenant moves out, California law gives the landlord exactly 21 calendar days to either return the full security deposit or provide the tenant with an itemized statement of deductions along with any remaining balance. This deadline is one of the most commonly violated rules in California property management, and the consequences for missing it are real.
If an owner fails to return the deposit or provide an itemized statement within 21 days, the tenant can take the owner to small claims court and may be awarded up to twice the deposit amount in penalties, on top of the actual deposit owed. Courts take this deadline seriously. It does not matter whether the owner was busy, waiting on a contractor bid, or simply forgot. Twenty-one days is the window, and it starts the day the tenant surrenders possession of the unit. An important clarification: the itemized statement and any remaining deposit must be mailed by the 21st day. It does not need to be received by the tenant within that window. The mailing date is what counts, so owners should use a method that provides proof of the date sent.
At Blue Oak, we begin the move-out inspection process immediately upon receiving the keys. This gives us time to document the condition of the unit, obtain any necessary repair estimates, and prepare the itemized statement well within the 21-day mailing deadline.
What You Can Deduct and What You Cannot
This is where most deposit disputes originate. California Civil Code Section 1950.5 limits security deposit deductions to four categories: unpaid rent, cleaning the unit to return it to the condition it was in at the start of the tenancy, repair of damages beyond normal wear and tear, and if the lease allows it, the cost of restoring or replacing personal property such as furniture or keys.
The critical phrase is beyond normal wear and tear. This is the line that separates a legitimate deduction from one that will not hold up in court, and it is the area where owners most frequently make mistakes.
Normal wear and tear includes things like minor scuffs on walls, small nail holes from hanging pictures, carpet that has worn thin from regular foot traffic, fading of paint or flooring from sunlight, and minor wear around door handles and light switches. These are the natural result of someone living in the unit, and they are not deductible from the security deposit.
Damage beyond normal wear and tear includes things like large holes in walls, stained or burned carpet, broken windows or fixtures, unauthorized paint colors or modifications, excessive filth that requires cleaning beyond the condition at move-in, and pet damage such as scratched doors or soiled flooring. These are caused by the tenant’s actions or neglect, and they are legitimately deductible.
The distinction sounds simple, but in practice it is one of the most common sources of conflict between owners and tenants. An owner who has not been inside the property in two years may walk in after a move-out and see worn carpet, faded paint, and scuffed baseboards and assume the tenant trashed the place. In reality, what they are looking at may be entirely normal wear and tear that cannot legally be deducted.
The Mistakes Owners Make Most Often
Charging for paint after a long tenancy. One of the most common deposit disputes involves repainting. If a tenant lived in the unit for three or more years, courts generally consider the interior paint to be at or near the end of its useful life. Charging a tenant the full cost of repainting a unit they lived in for five years is unlikely to hold up. If the tenant painted the walls an unauthorized color or left marks and damage beyond normal wear, a deduction may be appropriate, but it should be prorated based on the expected life of the paint.
Charging for carpet replacement on an aging carpet. The same principle applies to carpet. If the carpet was already eight years old when the tenant moved in, it has little to no remaining useful life. Charging the full cost of replacement to the tenant is not a defensible deduction, even if the carpet looks bad. If the tenant caused specific damage such as stains, burns, or pet damage that shortened the carpet’s life, you can deduct a prorated amount based on the remaining useful life, but not the full replacement cost.
Deducting for cleaning without documentation to support it. Cleaning is not normal wear and tear. A tenant is expected to return the unit in the same level of cleanliness that was documented at move-in. If the unit requires cleaning beyond that documented condition, the cost is a legitimate deduction. However, the key word is documented. Without thorough move-in photos or video showing the condition the tenant received the unit in, it becomes very difficult to prove the tenant left it dirtier than they found it. Owners who deduct for cleaning without a clear baseline to compare against are the ones who lose disputes.
Failing to provide receipts or estimates. California law requires that the itemized statement include either actual receipts for completed repairs or good-faith estimates if the work has not yet been done. If you use estimates, you are required to send the tenant the actual receipts within 14 days of the work being completed.
Using the deposit as last month’s rent. Tenants sometimes try to stop paying rent in their final month and tell the landlord to apply the security deposit. This is not how security deposits work in California. The deposit is held for damages and unpaid obligations after move-out, not as a prepayment of rent. Owners should never agree to this arrangement, and tenants who attempt it are in violation of their lease.
Why Move-In Documentation Is Your Best Defense
Nearly every deposit dispute comes down to one question: what condition was the property in when the tenant moved in versus when they moved out? If you cannot answer that question with clear evidence, you are at a disadvantage in any dispute.
A thorough move-in condition report with dated, time-stamped photos or video of every room, surface, and appliance is the single most important piece of documentation in the deposit process. It establishes the baseline. Without it, a tenant can claim that the damage was pre-existing, and you will have a very difficult time proving otherwise.
At Blue Oak, we conduct detailed photo and/or video documentation inspections at both move-in and move-out on every unit we manage. When it comes time for the move-out, we compare the current condition against the move-in record item by item. This makes the deposit accounting objective rather than subjective, and it dramatically reduces disputes.
The Bottom Line
Security deposits in California are not a gray area. The rules are specific, the deadlines are firm, and the penalties for getting it wrong are real. Owners who treat the deposit as their money from the start, or who make deductions based on what feels right instead of what the law allows, are exposing themselves to costly disputes and potential penalties.
The owners who handle deposits well are the ones who understand the current law including the AB 12 changes, document the property thoroughly at move-in, know the difference between normal wear and tear and actual damage, provide itemized statements with receipts within 21 days, and never deduct for items they cannot clearly support with evidence.
At Blue Oak Property Management, security deposit accounting is one of the most detail-oriented parts of what we do. We handle the move-in documentation, the move-out inspections, the itemized statements, and the deposit returns on behalf of our owners. We keep our owners on the right side of the law while making sure legitimate damages are properly accounted for.
Blue Oak Property Management helps rental property owners protect their investments and maximize their returns. If you have questions about security deposits, California landlord-tenant law, or any other aspect of managing your rental property, contact us today.