Security Deposit Limits in California for Rental Properties

Just as a reminder, as of July 1, 2024, California updated its security deposit rules for residential rentals. These changes are part of California Civil Code section 1950.5, as amended by AB 12, and they significantly changed how much landlords can collect at move-in.

For most landlords, the maximum security deposit you can collect is equal to one month’s rent. This applies to residential rental properties whether they are furnished or unfurnished.

There is a limited exception that allows certain small landlords to collect up to two months’ rent as a security deposit. To use the two-month security deposit exception, the owner must be an individual person, or an LLC where every owner of the LLC is also an individual person. If the property is owned by a corporation, or if any owner of the LLC is a company, including another LLC or a corporation, the exception typically does not apply and the security deposit maximum is one month’s rent. In addition, if the tenant is an active member of the U.S. Armed Forces, the security deposit is capped at one month’s rent even if the landlord would otherwise qualify for the two-month exception.

It is important to understand that the term “security deposit” is defined broadly under California law. It includes any money collected at the beginning of the tenancy to secure performance of the lease. A refundable pet deposit is not separate from the security deposit. If you collect a refundable pet deposit, it must fit within the one-month or two-month maximum, depending on whether you qualify for the exception. You cannot collect the full legal maximum as a security deposit and then add an additional refundable pet deposit on top of it.

Nonrefundable deposits are generally not permitted. If money is collected as a deposit to cover potential damage or unpaid rent, it must be refundable, subject to lawful deductions. Because refundable pet deposits count toward the cap, many landlords choose to charge monthly pet rent instead. Ongoing rent is not part of the security deposit and is not subject to the same cap, but it should be clearly written into the lease and applied consistently.

Security deposits can only be used for specific purposes allowed by law. These generally include unpaid rent, cleaning necessary to return the unit to the same level of cleanliness as at move-in, repair of damage beyond normal wear and tear, and replacement or restoration of landlord-provided personal property if authorized in the lease. Normal wear and tear cannot be deducted from the deposit.

At the end of the tenancy, California law requires the landlord to return the security deposit, or the remaining balance after lawful deductions, within 21 calendar days after the tenant vacates. If deductions are made, the landlord must provide an itemized statement explaining each deduction. If total deductions exceed $125, the landlord must include copies of receipts or invoices, or provide a description of the work performed and the time and hourly rate if the landlord or an employee completed the work.

For Manhattan Beach landlords, there is no separate city-specific security deposit cap beyond California state law, so Civil Code section 1950.5 controls the maximum deposit amounts and handling requirements. Knowing these rules upfront helps you set clear expectations at move-in and avoid issues at move-out.
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What if my property is live/work or commercial?

If you are renting a live/work property or mixed-use unit, the key question is whether the tenant is using the space as their home. If the tenant is renting the property as their residence, even if they also operate a business from the space, it is generally treated as a residential tenancy. In that case, the residential security deposit limits under Civil Code section 1950.5 apply. Simply labeling a property “live/work” does not automatically make it exempt from the residential deposit caps.

If the space is leased strictly for business purposes under a true commercial lease and is not being used as someone’s home, the residential security deposit limits do not apply. In commercial rentals, the security deposit amount is largely negotiable and governed by the terms of the lease agreement rather than the one-month or two-month residential caps.

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Best regards,
Lindsay Woolf CA DRE 02236711
Josh Woolf CA DRE 02252408
Circa Properties CA DRE 02182130

Disclaimer: The information in this blog post is provided for general informational purposes only and does not constitute legal advice. Real estate transactions can vary based on individual circumstances and local regulations. For guidance related to your specific situation, please consult the appropriate licensed professional.