California’s legislature recently passed a bill, AB 12 in a 50-to-18 vote. This bill targets security deposits, which may have wider impacts on owners and operators in the state.
What does the bill do?
AB 12 changes California’s existing regulations on security deposits, reducing the amount owners and operators can collect from residents at the time of move-in. By changing California’s security deposit law, AB 12 blocks most owners and operators from charging more than the value of one month’s rent as a security deposit.
The existing law, passed in 1977, states that owners and operators can collect the value of two times the monthly rent for an unfurnished apartment, and three times the monthly rent for a furnished apartment—in addition to the first month’s rent. The new law will allow most landlords to collect an amount less than or equal to one month’s rent as a security deposit.
Trends in residential real estate laws
California is joining a growing trend. Many states and municipalities are revamping the laws surrounding rental relationships—with a particular focus on security deposits. States like New York, Colorado, Florida, Maryland, Maine, and Delaware have all passed similar, but not identical laws. It’s important to note that each of these states has addressed security deposit laws differently. Owners and operators should be aware of the state and local laws where they operate.
Is there more to come in California?
The recently organized Renters’ Caucus led the passing of AB 12. This growing movement in the California State House is focused on creating additional protections for residents.
California is often a leader in new regulations, so this suggests that it may not be the last bill like it—for California or the rest of the country.
Why is this being passed?
Applicants can’t afford deposits. The legislative analysis for the bill stated that since 2000, rent has increased by 35% in the state of California, while income rose only 6%. Meaning the increase in rent outpaced increases in income by 483%.
To afford the cost of moving, applicants have often gone to predatory lenders, gone into debt, and/or don’t move.
Who is exempt?
Primarily, individuals acting as landlords of two or fewer residential properties, with no more than four units offered for rental. However, even landlords who are exempt from the law are required to limit the amount of security deposit collected from service members.
How do I navigate this?
You can still collect the value of one month’s rent as a security deposit
While the amount you can require from a resident is smaller than what was previously allowed in California, you can still collect a deposit. While it won’t cover as much, it’s better than nothing.
You can accept Deposit Coverage
If you’re looking to maintain your protection while keeping upfront costs low for a new resident, ask your applicants to purchase a security deposit alternative such as an owner-and-operator-beneficiary bond. Bonds like this cover what a traditional security deposit does—unpaid utilities, repairs, legal fees, late fees, parking, pet fees, amenity fees, bounced check/NSF fees, damages, and more. Applicants pay a non-refundable premium, which is typically a percentage of one month’s rent.
Proactively work with residents to repair damage ahead of time
Your resident has the option to request a walk-through ahead of move-out where you’ll detail the items you’d deduct from their security deposit to repair. This gives residents a chance to fix any issues before leaving.
Residents can still be held liable for damages
You still have recourse for restitution through the courts where you can sue your former resident(s) for damages. This should probably be your last resort since it’s expensive, time-consuming, and not guaranteed to work out for you.
Where does the law currently stand?
The bill passed and was signed into law. The limitations on security deposit amounts will go into effect July 1, 2024.
* TheGuarantors is not a law firm. The information provided here is for general informational purposes only and is not legal advice. Any actions taken or not taken based on this content are done at your own discretion, and we make no claims of error-free information.
Notice to California Applicant/Insured: Guarantors Insurance Agency's lease guarantee and security deposit alternative surety bonds are offered as surplus lines insurance products, also referred to as non-admitted insurance products. The surety bonds are not licensed in the state, but are duly reported to California Surplus Lines Association in accordance with California law.
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