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How the security deposit law changed

Signed into law on Oct. 11, 2023, California Assembly Bill 12 limits the maximum security deposit for most residential rentals in California to just one month’s rent. Prior to the change, which takes effect on July 1, 2024, landlords in the state could charge up to two months’ rent, or three months’ rent for furnished units, as a condition of the lease. The new law applies only to leases entered into after July 1, so existing leases remain valid until their terms end.

The new law also prohibits landlords from asking for the last month’s rent upfront, deposits pertaining to pets, and any other upfront payment as conditions of the lease, as these are all considered part of the security deposit. Also, it’s worth noting that active U.S. military service members may not be charged more than one month’s rent for a security deposit under any circumstances (per existing law).  

Depending on how the new security deposit limit impacts your rental business, you might consider raising your monthly rent to account for any additional financial risk this may cause. However, it’s essential to balance this consideration with your need to set a competitive rental rate in your area. 

Small landlords can still charge more

The new law applies to furnished and unfurnished rental units leased by all but the smallest landlords. To be considered exempt from the new security deposit limits, you must: 

  • Own no more than two residential rental properties consisting (collectively) of no more than four rental units in total.
  • Be a sole proprietor or an LLC that is not owned by a corporation or another LLC.

This means that the new law will not apply to landlords who only have one or two properties, and have up to four residential rental units in total.

If you own rental property in another state, you may want to learn about the security deposit limits and laws where that property is located.

Ways Rocket Lawyer can help:

  1. Register your rental business.
    Whether you’re renting out several apartments or a single unit, put your rental business in the best position to succeed by registering an LLC. With a Rocket Legal+ membership, your first business registration filing is FREE (excluding state fees).  
  2. Update your Lease Agreement.
    If you’re a California landlord, unless you fit under the exemption, update your Lease Agreement to comply with the new deposit limit for new leases signed after the law takes effect.
  3. Send a Rent Increase Letter.
    If you’ve experienced significant losses in the past due to property damage or unpaid rent, you may want to consider annual rent increases.
  4. Get everything legal all in one place.
    Enter into contracts with confidence using Rocket Lawyer documents. Get your leases and contracts signed quickly and securely using RocketSign. And when you need expert tax or legal help, reach out to a Rocket Lawyer network attorneys for affordable legal advice. 

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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