Security Deposits Are Getting a Makeover — Are You Ready?

Sometimes we take a fun poke at housing providers because all landlords and property managers know how to take security deposits. Comparatively fewer know how to properly handle security deposits when the tenant vacates. Rest assured, 2026 will usher in further complexity in security deposit rules. 

When a tenant is planning to move out, the first thing they will think about – before how to maneuver that gigantic couch around doorways and hauling it down the stairs – is if and when they’ll get their security deposit back.

It should come as no surprise that the number one reason for landlord-tenant disputes is conflicts over security deposit accounting. At one time, the landlord would only be liable for the security deposit if a disgruntled tenant prevailed in small claims court over claims of security deposit mishandling.

Fast forward to today, and housing providers could face financial penalties well in excess of the actual security deposit, especially when the withholding of security deposits is made in “bad faith, like when there are unjustified deductions for normal wear and tear, not providing an itemized statement and receipts within 21 days, failing to take move-in/out photos, etc.

Over the past several years, security deposits have taken a plot twist. 

In 2025, it was all about photography and videography – taking photos and videos before move-in, and before/after repairs if using the deposit for charge deductions. Before that, lawmakers limited the amount of how much housing providers could charge. Enter AB 414, more legislation going into effect  January 1, 2026.

The new law addresses a continuing thorn in the side of housing providers.

• In the New Year, landlords must return the balance of the security deposit via a single check payable to all adult tenants unless they have a written agreement otherwise.

• AB 1414 also allows for the return method and itemized deductions to be agreed upon in writing at the start of the lease and at any point during the tenancy.

• The itemized statement can be sent via email. This solves the common problem when the landlord is unaware of where to send documents because the outgoing tenants did not provide a forwarding address. Armed with an email, it is perfectly acceptable to transmit everything electronically, and this is really a public policy understanding that email is a credible way to engage in communication.

The particularly interesting issue is when one tenant flies the coop early and what to do with the security deposit check once the unit is vacant. 

Take, for example, a living arrangement consisting of four adult tenants, and one of them leaves early and disappears to New York. Three years later, the unit becomes vacant, and there are only three tenants in the unit.

The new rule is that the landlord has to send the check written to all four tenants. The purpose of this requirement is to ensure that all of the adult tenants are put on notice of the actual check so that one former tenant doesn’t abscond with the check and not pay the proportionate amount of the security deposit to the other remaining tenants.

And that creates an organizational nightmare for multiple tenants who may be in different locations, but that’s a tenant issue, not a landlord issue. The most important thing to understand is that housing providers must return the balance of the security deposit by a single check payable to all adult tenants unless they have an agreement to the contrary. Get that written agreement and make sure everybody signs it, and it is documented how the landlord is going to handle the security deposit accounting.

The law was created to simplify the process for renters and provide clarity for housing providers when multiple tenants are on a lease, especially in situations where roommates disagree or are hard to reach. We believe, in fact, that while this will resolve some of the complexity surrounding security deposits, it will also create issues in the future. When there are revolving roommates and initial tenants can no longer be found, but they were the ones who provided the initial security deposit, landlords are going to have to deal with that in issuing a check to all people. And if the tenants object because they can’t find that initial tenant, they are going to have to be told to go find them and get an agreement. Otherwise, until that time, housing providers must write the check to the four people who gave them money.

Most landlords do not particularly like the new law, but they don’t hate it either. Let’s go over the pros and cons.

What Landlords Like About AB 414

It finally modernizes deposit refunds.

Many landlords were frustrated with the old rule:

• Tenants could pay rent/deposits electronically, but landlords could not return the deposit electronically unless the tenant had already given notice to vacate.

AB 414 fixes this outdated rule. Landlords see this as:

• Faster

• Traceable

• reduces mail fraud / lost checks

• reduces disputes (“I never got your refund!”)

Itemized statements can now be emailed.

Landlords appreciate:

• no more printing, stapling, mailing, and hoping USPS delivers on time

• digital timestamps providing evidence that the landlord met the 21-day deadline

• ess paperwork

This reduces administrative workload.

It aligns better with modern property-management practices.

• Most property management platforms (AppFolio, Buildium, Rentec, etc.) already run on electronic payments and electronic notices.

• AB 414 lets landlords fully use those tools without violating Civil Code 1950.5.

What Landlords Dislike or Are Cautious About

More possible disputes about “designated bank accounts.”

AB 414 requires that electronic refunds go to a bank account designated by the tenant. Landlords are concerned about:

• disputes when multiple co-tenants exist

• who signs off on the designated refund account

• tenants changing account info last-minute

• fraud (e.g. fake “updated account info” emails)

It adds one more layer of compliance risk.

California’s rules about deposits are already strict under:

• AB 12 (one-month cap)

• AB 2801 (mandatory photos before/after move-out)

• AB 414 adds another requirement — electronic refund rules — which some landlords see as one more liability trap.

It doesn't solve the bigger problem: dispute litigation.

AB 414 is about how deposits are returned, not why deductions are allowed. Landlords still face:

• small claims lawsuits

• financial damages for errors in security deposit accounting and even stiffer penalties for bad-faith withholding

• disputes around wear-and-tear

AB 414 doesn’t help with the substance of disputes — only the logistics.

Let’s summarize what AB 1414 changes with this drop-down: