Disclaimer: This document and any information contained herein are provided for informational purposes only and do not constitute legal advice. The author of this document is not an attorney, and the information presented should not be considered as a substitute for professional legal advice.
New legislation was signed into law that limits security deposits for California rental properties to one month’s rent, regardless if the property is furnished. Assembly Bill 12 (AB12) imposes a cap on security deposits, at the expense of Landlords, to protect tenants from financial burdens when securing rental properties. AB 12 was authored by Assemblyman Matt Haney, D-San Francisco, and will reshape the landlord-tenant dynamic in California when it takes effect on July 1, 2024. All California landlords must be aware of the security deposit cap set by AB12, even if they are exempt from the law.
Key Impacts on California Landlords:
Security Deposit Cap:
AB12 sets a maximum limit on security deposits equal to one month’s rent, reducing funds available to offset unpaid rent or damages to the rental property.
Tenant Screening Emphasis:
With reduced security deposits, risk is increased. Landlords should review their application screening criteria.
When screening rental applications, a more thorough tenant screening process, including credit background checks, rental history reviews, and income verification, is more important than ever to make informed decisions about prospective tenants. If you don’t have written screening criteria, now is the time to formalize your selection process.
Legal Compliance:
Landlords must be informed about the specifics of AB12 to ensure compliance with the established limits on security deposits. Failure to do so may lead to legal consequences, including fines and potential legal action from tenants.
Navigating the Changes:
Lease Agreement Adjustments:
Landlords should update lease agreements to reflect the new security deposit limits mandated by AB12. Clear communication with tenants about revised terms fosters transparency and helps manage expectations.
Alternative Risk Mitigation:
Increasing the minimum acceptable criteria for approving a rental application may reduce risk.
Exploring alternatives, such as requiring additional references, can provide landlords with additional protection in the absence of larger security deposits.
Engaging the services of a professional property manager that has expertise in screening rental applications.
Some Landlords are Exempt:
Certain landlords may be exempt from AB12's security deposit cap. Landlords who meet the following criteria may be exempt:
The Landlord is a natural person or an LLC in which all members are natural persons.
The Landlord owns no more than 2 residential rental properties that collectively include 4 or fewer units. For example, 1 four-plex, 2 duplexes, or 2 single-family homes/condos/townhomes would qualify. The law is silent on where these properties are located.
NOTE: Even if a Landlord is exempt from AB12, the security deposit is still limited to one month's rent if the applicant is an active duty service member.
The highly respected real estate attorney, Daniel Bornstein, prepared a simple flowchart to assist Landlords in determining the maximum security deposit they can collect under the new AB 12 rules.
California’s legal landscape continues to reshape the Landlord/Tenant relationship. As the business environment becomes more complex, the importance of having professional representation becomes of greater importance. Advantage Property Management Services understands the challenges that small mom-and-pop Landlords face when new laws like this are passed. We are here to guide Landlords and help them grow their wealth without the work. Feel free to contact us to discuss your rental real estate needs.
Read AB12 here: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB12
