The one-month cap, plainly
Before July 1, 2024: California capped deposits at two months' rent on unfurnished units, three months on furnished. After: one month for nearly everyone. That's the change.
The policy argument was straightforward. A $2,000 apartment used to cost $6,000 up front for the average renter — first month plus a two-month deposit. AB 12 cuts that to $4,000. The tradeoff: landlords absorb more risk, especially on damage that exceeds one month of rent and on tenants who skip out owing money.
Before vs. after, by scenario
| Scenario | Before July 1, 2024 | After |
|---|---|---|
| Unfurnished, standard landlord | 2 months | 1 month |
| Furnished, standard landlord | 3 months | 1 month |
| Unfurnished, small-landlord exception | 2 months | 2 months (unchanged) |
| Furnished, small-landlord exception | 3 months | 2 months (reduced) |
| Separate "pet deposit" | Counted toward cap | Still counted toward cap |
The small-landlord exception (narrower than it looks)
AB 12 carved out one exception that lets you keep the two-month cap. It's narrow, the lines are bright, and most landlords don't qualify the way they think they do.
All four must be true
- Natural person. A human being. Not an LLC, not a corporation, not a partnership, not a court-supervised trust. The single most common disqualifier is LLC ownership — if you put the property into an LLC for liability protection, you are not eligible.
- Two properties or fewer. Statewide. Across everything.
- Four total dwelling units or fewer across those properties. One duplex + one single-family = 3 units, qualifies. Two triplexes = 6 units, doesn't.
- Not court-supervised. Property held in a court-administered estate or trust doesn't qualify.
Documenting the exception
If you claim the exception, put it on paper in the lease: that the landlord is a natural person, owns no more than two residential properties, and those properties hold no more than four total units combined. Keep your own portfolio documentation. If a tenant or their lawyer ever challenges the claim, the documentation is what carries it.
The four categories you can deduct, and nothing else
Civil Code §1950.5 lists exactly four allowable deductions. Anything outside those four is an improper deduction. Improper deductions trigger §1950.5(l) — up to 2× the full deposit as a bad-faith penalty, on top of returning the money you tried to keep.
The four allowable categories
- Unpaid rent — including any partial month the tenant occupied without paying.
- Cleaning to restore move-in condition — only if the tenant left it dirtier than that baseline. You can't bill cleaning on a unit the tenant left clean.
- Damage beyond normal wear and tear — caused by the tenant, their guests, or pets. Normal-use deterioration is not damage.
- Restoration of landlord-owned furnishings — appliances, fixtures, or furniture damaged beyond normal use.
- Repainting walls because the color faded with use
- Replacing carpet that wore down evenly over its useful life
- "Standard turnover cleaning" billed regardless of how the unit was left
- Administrative or processing fees of any name
- Pre-existing damage that's in the move-in photos
- Upgrades and improvements for the next tenant's benefit
Normal wear and tear vs. damage — examples
| Situation | Normal Wear & Tear? | Deductible? |
|---|---|---|
| Small nail holes from hanging pictures | Yes | No |
| Large holes in drywall | No — damage | Yes |
| Carpet worn down evenly over 5+ years | Yes | No |
| Large stain or burn mark on carpet | No — damage | Yes (prorated) |
| Paint scuffs and minor marks on walls | Yes | No |
| Crayon drawings on walls by child | No — damage | Yes |
| Light switch plates slightly discolored | Yes | No |
| Broken window (not from weather) | No — damage | Yes |
| Dust behind appliances | Yes | No |
| Grease buildup in oven left by tenant | No — cleaning | Yes |
| Faded paint from sunlight | Yes | No |
| Pet damage to flooring or baseboards | No — damage | Yes |
The proration rule (the part that surprises owners)
When the damaged item has a finite useful life — carpet, paint, blinds, appliances — courts expect deductions prorated by remaining life. Carpet rated for 10 years that was 7 years old when damaged? You can deduct 30% of replacement cost. Not 100%. Owners who bill the whole replacement get the whole deduction reversed at trial and pay the 2× penalty on top.
The 21-day clock
California's 21-day return rule is one of the strictest in the country. The clock is calendar days, not business days. Miss it by a day and you've opened the door to the 2× penalty whether or not your deductions were valid.
Day 0 — tenant vacates
The clock starts the day the tenant actually leaves and surrenders keys, not the last day on the lease. If the tenant holds over, the clock starts at the actual move-out. Confirm the date in writing — an email or text confirming key return is enough.
Days 1–3 — walk and photograph
Run the move-out inspection inside 72 hours. Standardized form, dated photos room by room, side-by-side comparison to the move-in photos. Keep both sets indefinitely. The single best protection against a deposit dispute is the photo file.
Days 4–14 — bids and receipts
Vendor estimates and invoices for anything you intend to deduct. Itemized. California courts don't honor ballpark figures or in-house management fees on contested deductions — you need the actual paper.
Day 21 — deposit and statement out the door
By this date: any remaining balance plus an itemized written statement of all deductions, mailed or hand-delivered. Work still in progress? Use a good-faith estimate and follow up with the final accounting within 14 days of completion — but the initial statement and any undisputed refund still go by Day 21.
What the itemized statement has to contain
- Each deduction item listed separately, with a description
- The exact dollar amount per item
- Cleaning: actual invoice from the cleaner, or hourly breakdown if done in-house
- Repairs: paid invoices from contractors
- Materials: receipts for everything purchased
- The math: deposit received, each deduction, balance returned
"Pet deposits" — they don't exist as a separate bucket
Landlords ask about pet deposits more than almost any other deposit question, and the answer hasn't changed since long before AB 12: California has never recognized a separate refundable pet-deposit category. Every refundable dollar you collect from a tenant — labeled "security," "pet," "key," whatever — counts against the §1950.5 cap.
Under Civil Code §1950.5(b), if you collect a full month of security plus a $500 refundable pet deposit on a $2,000 unit, you've collected $2,500 against a $2,000 cap. That's a violation the moment the check clears.
Service animals and ESAs — no deposit, no fee, period
Service animals and emotional support animals are accommodation animals under federal fair housing law and California's FEHA. You may not charge any additional deposit, fee, or rent for them. Charging a pet deposit for a verified ESA is a documented fair housing violation that triggers FEHA penalties. You can still recover for actual damage out of the regular security deposit — you just can't take more money up front because the animal is there.
"First, last, and deposit" — almost certainly illegal now
This question costs more landlords money than any other one in this area, and it's worth being direct: "first month, last month, and a security deposit" was a standard move-in package for decades. As of July 1, 2024, it's almost always a violation.
Civil Code §1950.5 defines "security deposit" broadly enough to include any payment held as security for tenant performance — including pre-paid last month's rent. Last month's rent collected in advance counts toward the same one-month cap as the security deposit. Adding both on top of first month's rent puts the total at two months' security, which is one month over for a standard landlord.
What "first month's rent" is — and isn't
First month's rent isn't a deposit. It's rent for the month you're handing over the keys. It doesn't count toward the cap. Anything beyond the current month's rent — pre-paid future rent, security, pet, whatever — does count. So the math is: first month + up to one month of combined security and last-month equals the legal ceiling for most landlords. Three months total only with the small-landlord exception.
Deposit accounting — what actually saves you in court
California doesn't require escrow accounts the way some states do. It requires receipts and records, and the landlord who can't produce them loses every contested deduction. The single most-decisive document in a security-deposit case is the move-in inspection report. A clean one ends the dispute before it starts.
The records that hold up
- Per-unit deposit ledger. Deposit amount, date, payment method, every lawful deduction, interest if applicable, return date and amount.
- Move-in file. Signed move-in inspection, dated photos or video walkthrough, written inventory if furnished.
- Move-out file. Matching move-out inspection (signed if the tenant was present), photos, every contractor invoice, every cleaning receipt.
- Payment confirmations. Copy of the deposit check or wire confirmation. If paid in cash — and you shouldn't be — a signed written receipt at the moment of payment.
The pre-move-out inspection (the right tenants forget about)
Civil Code §1950.5(f) gives every tenant a right to request a pre-move-out inspection inside the two weeks before they vacate. If they ask, the landlord walks the unit with them and gives them a written list of anything that will be deducted unless cured. The tenant gets a chance to fix it themselves. If a landlord refuses the inspection or skips it when asked, the right to deduct for those items may evaporate. Two minutes of paperwork on the inspection itself prevents a 21-day-letter dispute later.
The penalties — and why courts apply them readily
California's deposit-penalty framework is intentionally lopsided toward the tenant. The legislature noticed decades ago that landlords were holding deposits routinely and tenants didn't have time, money, or counsel to chase them. The 2× penalty exists to flip that math.
Wrongful withholding
Fail to return the deposit inside 21 days with no lawful basis, and the tenant can sue in small claims (current ceiling: $12,500 statewide) or Superior Court. No mandatory attorney. Recovery: the amount wrongfully withheld plus costs.
The 2× bad-faith penalty under §1950.5(l)
Find bad faith and the court awards the tenant up to twice the deposit on top of the actual amount. Bad faith is the meat of nearly every deposit dispute that makes it to trial.
Collecting over the cap
Charging a deposit above the AB 12 ceiling is itself a §1950.5 violation. Tenants recover anything over the cap, plus attorney's fees if a court finds the conduct oppressive or malicious. Local housing authorities can also stack on penalties for repeat violators. The cleanest path is simply not collecting over the cap — the consequences of getting it wrong are bigger than the convenience of an extra month of cushion.
How we run deposits at NGC
Deposit compliance is the highest-volume liability area in residential property management. Every unit, every turnover, twenty-one days. We've taken the math out of the hands of the move-out coordinator on Day 18.
- Cap enforcement at lease generation. The lease system reads ownership structure and property type and sets the legal maximum automatically. Owners using NGC physically cannot accept a deposit over the cap.
- Photo-driven move-in inspection. Room-by-room, digital, tenant-signed, cloud-stored. The single document that ends most disputes before they start.
- 21-day countdown with Day 7 and Day 14 alerts so the itemization isn't being assembled at 5pm on Day 21.
- Itemized statement generator that attaches the contractor invoices automatically and formats to §1950.5 requirements.
- Per-unit ledger with a full audit trail from receipt through return.
Request a free deposit review →
Common questions, straight answers
What's the max deposit on a California rental right now?
One month's rent for most landlords, furnished or unfurnished. AB 12 has been in effect since July 1, 2024. The small-landlord exception (natural person, two properties or fewer, four units or fewer total) lets that owner still collect up to two months. LLCs and corporations don't qualify regardless of size.
How long to return the deposit?
Twenty-one calendar days from the day the tenant actually vacates and surrenders keys — not the lease end date. Inside that window: either the full deposit returns, or an itemized written statement of deductions goes out with any remaining balance, with invoices attached. Day 22 is the open door for the bad-faith penalty.
What can I actually deduct?
Four categories from §1950.5: unpaid rent, cleaning to restore move-in condition, damage beyond normal wear and tear, and repair of landlord-owned furnishings damaged beyond normal use. Every deduction needs an invoice or receipt. Faded paint, small nail holes, evenly worn carpet — wear, not damage. Not deductible.
Can I charge a separate pet deposit?
No. California has no separate pet-deposit bucket. Any refundable money you take from a tenant counts toward the §1950.5 cap regardless of label. Under AB 12's one-month ceiling, a separate refundable pet deposit puts the total over the cap and gives the tenant a §1950.5 claim. Service animals and ESAs get no extra deposit at all.
What happens if I miss the 21-day deadline?
The tenant can sue in small claims (up to $12,500 statewide) for the wrongfully withheld amount. If a court finds bad faith — and courts find bad faith readily on no response, no receipts, or unexplained partial returns — §1950.5(l) tacks on up to 2× the deposit as a penalty. The 2× isn't capped; it stacks on the actual amount.
Does AB 12 apply to leases signed before July 1, 2024?
AB 12 governs tenancies that started July 1, 2024 or later. Pre-existing tenancies under earlier leases are generally grandfathered at the prior caps until the tenancy materially changes — a new lease, a co-tenant added, a substantial rent change. Once a trigger event hits, applying the new cap going forward is the safe call. Talk to a CA landlord-tenant attorney on any pre-AB-12 tenancy where the deposit number is significant.