SECURITY DEPOSIT LAW IN RESIDENTIAL AND COMMERCIAL LEASES
By: Roman P. Mosqueda, Esq.
The Civil Code of the State of California contains the security deposit law in residential and commercial leases on California properties.
More particularly, Civil Code Section 1950.5 deals with security for rental agreement for residential property and use of (security) deposit by the landlord. And Civil Code Section 1950.7 applies to payment to secure rental agreement for other than residential (commercial) property and use of deposit by the landlord.
Definition Of And Uses
Of Security In Residential
Leases:
“Security” for a rental agreement for residential property that is used as the dwelling of the tenant means “any payment, fee, deposit or charge (except nonrefundable application screening fee)… that is imposed at the beginning of the tenancy to be used … for any purpose, including, but not limited to, any of the following:
(1) compensation of a landlord for a tenant’s default in the payment of rent;
(2) repair of damages to the premises, exclusive of wear and tear, caused by the tenant or by a guest or licensee of the tenant;
(3) cleaning of the premises upon termination of the tenancy necessary to return the unit to the same level of cleanliness it was in at inception of the tenancy; and
(4) remedy future defaults by the tenant under the rental agreement to restore, replace or return personal property or appurtenances, exclusive of ordinary wear and tear, if the security deposit is authorized to be applied thereto by the rental agreement,” under Civil Code Section 1950.5(b).
Itemized Statement And Return
Of Remaining Security:
A. Amount Of Security Deposit:
The amount of security deposit that may be demanded or received by a landlord in a residential lease should not be in excess of an amount equal to two months’ rent, in case of an unfurnished residential property, and an amount equal to three months’ rent, in case of a furnished residential property. But the landlord and tenant may agree to an advance payment of not less than six months’ rent, if the term of the lease is six months or longer.
The aforesaid maximum amount of security deposit (the current market going rate is one month rent) is in addition to any rent for the first month paid on or before initial occupancy, per Civil Code Section 1950.5(c).
B. Inspection And Itemized
Statement:
The security deposit is held by the landlord for the tenant for the duration of the tenancy.
No later than two weeks before the termination or the end of the lease date, the landlord shall, upon request of the tenant, make an initial inspection of the premises prior to any final inspection the landlord makes after the tenant has vacated the premises, per Civil Code Section 1905.5(f)(1).
Based on the inspection, the landlord shall give the tenant an itemized statement specifying repairs and cleaning to be the basis of any deductions from the security that the landlord intends to make. But the tenant has the right to remedy identified deficiencies until termination of the tenancy.
C. Return Of Remaining
Security:
No later than 21 calendar days after the tenant has vacated the premises, the landlord shall furnish the tenant by mail a copy of an itemized statement indicating the basis for, the amount of, any security received and the disposition of the security, and shall return any remaining portion of the security to the tenant, per Civil Code Section 1950.5(g).
Along with the itemized statement, the landlord shall include copies of documents showing charges incurred (bills, invoices, or receipts) and deducted by the landlord to repair and/or clean the premises, unless the deductions do not exceed one hundred twenty-five dollars ($125), or the tenant had waived the right to itemized statement.
Security Deposit In
Commercial Leases:
The Civil Code does not limit the amount of security deposit that may be demanded or received by a landlord in a commercial lease, which is left to the agreement of the landlord and tenant.
Civil Code Section 1950.7 allows the landlord in a commercial lease to claim from the security deposit only those amounts as are reasonably necessary to: (1) remedy tenant defaults in the payment of rent; (2) repair damages to the premises caused by the tenant; or (3) clean the premises upon termination of the tenancy.
If the claim of the landlord on the security deposit is only for defaults in the payment of rent, and the security deposit equals no more than one month’s rent plus a deposit amount clearly described as the payment of the last month’s rent, the remaining portion of the security deposit shall be returned to the tenant at a mutually agreed upon time not later than 30 days from the date of possession of the premises by the landlord.
But if the security deposit exceeds the amount of one month’s rent, then any remaining portion of the security deposit in excess of one month’s rent shall be returned to the tenant no later than two weeks after the date the landlord receives possession of the premises, with the remainder to be returned or accounted for within 30 days from the date the landlord receives possession thereof, Civil Code Section 1950.7(c)(2).
And if the claim of the landlord upon the security deposit includes amounts reasonably necessary to repair damages to the premises caused by the tenant or to clean the premises, then the remaining portion of the security deposit shall be returned to the tenant at a mutually-agreed time, but no later than 30 days from the date the landlord receives possession of the premises.
Security Deposit Upon
Interest:
Upon the termination of the landlord’s interest in the residential or commercial premises by sale, assignment, death, appointment of a receiver or otherwise, the landlord or his/her/its agent shall transfer the remaining security deposit to the landlord’s successor-in-interest, or to the tenant.
Handling security deposit should be in accordance with the security deposit law incorporated in the residential or commercial lease agreement. If not so incorporated, the agreement of the parties would prevail, if not contrary to the security deposit law discussed herein.
(The Author, Roman P. Mosqueda, is a real estate attorney and broker, handling residential and commercial leases agreements, among other areas of law practice.)