A security deposit is one of the most important tools that landlords have at their disposal, but it’s also one of the most misunderstood income property resources. Many private property owners don’t fully appreciate the security deposit definition in a legal sense, and managing security deposits is one of the most valuable services that a property management company in St. Helena can provide.
The Security Deposit Definition in California
The security deposit definition is defined in California as of 2013 by Civil Code 1950.5. There are also numerous cases, such as Granberry v. Islay Investments in 1995, that further illuminate the law. The legal definition of a security is any payment imposed prior to tenancy as advanced payment of rent or to be used for various purposes permitted by the subdivisions of the code. If a landlord must evict a tenant, this deposit can cover or help offset the default rent. The various purposes allowed by the law don’t include preexisting conditions or anything that would fall under ordinary wear and tear.
Security Deposit Limits
The law does set forth limits to what a landlord or property management company in St. Helena can require. For an unfurnished unit, that amount is twice the monthly rent. For a furnished unit, that amount is thrice the monthly rent. If rent isn’t paid on a monthly basis or fluctuates, then averages are used. The law doesn’t require this amount, and it’s legal for a tenant and a landlord to negotiate an amount less than this, but they cannot expand the legal meaning of a deposit.
The law does require a receipt when the security deposit is paid. It does not, however, require a written notice after receipt. This omission is worth mentioning because many states do require a formal notice that’s then kept on record should the need for it ever arise.
Nonrefundable Security Deposits
California does not allow for nonrefundable security deposits. In other words, you can’t inform a tenant up front that the security deposit is a cost of renting the unit. Furthermore, if you withhold some or all of the deposit upon vacancy and the tenant challenges your withholding, then you’ll be required in court to support your decisions according to the law and your lease and with visual evidence.
Storing Security Deposits
California requires landlords and property managers in St. Helena to store security deposits, but it doesn’t dictate how you have do that. You don’t have to store it in an escrow account, for instance, but you are responsible for it. Therefore, if you store the deposit in your home as cash and you’re burglarized, you’re still responsible for it, either out of pocket or via insurance.
Renter deposit rights include the right to know how you’re storing the deposit. If you are storing the deposit in an interest-bearing account, then the tenant has the right to that interest upon request. You don’t have to offer it, but if they request it, you have to provide it on a monthly basis or however interest is paid on the account, but you also have the right to charge an administrative fee.
Keeping Some or All of a Security Deposit
As mentioned, you can keep some or all of a security deposit but only within the confines of the law in order to protect renter deposit rights. You can keep as much as is necessary to cover outstanding rent, but you can’t pursue that amount further. You can keep the deposit for damage as long as that damage is in excess of normal wear and tear. Be mindful that the court will assess normal wear and tear based on the condition in which you maintain the property overall. You can keep any cleaning costs needed to return the unit to the condition it was in at move-in, and you’re allowed to keep the deposit to cover any debts you may occur after a lease violation. If a tenant wants out of a lease prematurely, for instance, you’re entitled to the entire security deposit to cover losses as you fill the vacancy.
Exit walk-throughs are required by law, and a landlord or property management company is expected to inform the tenant of the intent prior to move-out. The tenant doesn’t have to agree. If the tenant does agree, and most will, the walk-through must be scheduled at least two weeks prior to move-out, and the tenant must receive written notice 48 hours in advance. During a walk-through, the landlord is expected by law to indicate any potential reasons that he or she may withhold some or all of the deposit.
Security Deposit Return Requirements
A property owner or property management company has a legal responsibility to return the deposit and/or a written statement within 21 days of move-out. The notice must indicate the deposit amount received at move-in and the amount returned after move-out. If all or some of the deposit was withheld, then the notice must include itemized deductions. California requires receipts showing the cost of labor, materials and so forth to be included as well.
Security Deposits and Sale of the Property
If a property is sold and the tenant continues to live there, landlords and property managers in St. Helena have two options. The first option is to transfer the deposit in full to the new owner. The deposit is now his or her responsibility. The second option is to return the deposit in full to the tenant. The entity that makes that decision must then inform the new owner of it in writing.