If you're wondering whether or not to charge a security deposit, the answer is that you should definitely charge a security deposit. Security deposits give you some money to repair damage renters may do to your property, disincentivize renters from damaging the place, and keep rowdy renters at bay.
As great as security deposits are, one must also remember that California has strict rules about security deposit collection and management. Read all about these rules in our brief guide.
Limits on Security Deposits
The older limits on security deposits were two months' rent for unfurnished places and three months for furnished. However, in 2023, Governor Newsome signed Assembly Bill 12 into law, limiting security deposits to one month's rent.
Technically, the Bill only goes into effect on July 1st, 2024. You can still go up to the old limits before that date, but remember that charging a considerable deposit may create a barrier that keeps your rental unit vacant for longer.
Managing Security Deposits
California's security deposit laws don't require landlords to keep the security deposit in any specified place. This gives the landlord the freedom to put the deposit in any account with any bank.
San Francisco landlords should opt for high-yield savings accounts. A local law requires landlords to give tenants their deposits with interest if they're not going to withhold anything.
This law is one of the reasons it's crucial to get landlord advice from a property management agency in San Fransisco. Their insight into financing and real estate budgeting can help you make the best decisions.
Withholding or Deducting From a Deposit
The withholding mechanism is what allows a security deposit to protect the landlord, but this power has limits. You're only allowed to deduct for unpaid rent and property damage. The property damage must also be worse than normal wear and tear.
Wear and tear is anything that happens naturally to every property. Some examples include loose cabinet doors or slightly worn carpets. If tenants never cleaned and the place is nearly uninhabitable, however, that counts as property damage.
You have 21 days to return a security deposit. If you do withhold, you have to give your tenants an itemized list of reasons why within 14 days of the lease's end.
Further Help
If the deposit doesn't cover the repairs (or if you never collected a deposit), you have further remedies. You can file a small claims lawsuit to recover unpaid rent, repair costs, and any other valid monetary damage you've suffered.
A small claims suit should be your last resort because it's a tedious and technical procedure. It's also time-consuming. Legal advice is pricey, and it's best to avoid getting a reputation for suing tenants.
Get the Best Landlord Advice
Apart from tenant screening, security deposits are the best tools for protecting your property. Tenants want their deposit back and so most treat the unit with respect.
For security deposits to be valid in California, landlords have to stick to the deposit limit. You're allowed to manage the deposit however you like, but there are rules and procedures in place if you want to withhold from the deposit.
If it all sounds technical and complex, PMI San Fransisco can clear it up for you. Get two decades' worth of insights and experience by consulting with us today.
