Leave it as you found it?
New state law surrounding security deposits raises questions on what tenants can be charged after vacating the unit and what constitutes “normal wear and tear.” Landlords also have to grapple with whether deductions can be made for professional cleaning services.
Key takeaways:
-
Housing providers need to adhere to the best practices in security deposit accounting or risk increased liability in light of new laws and a proliferation of litigation by tenants’ attorneys.
-
Landlords must comply with “before and after” photo-taking requirements depending on the life stage of the tenancy.
-
When evaluating what to deduct from the security deposit, housing providers need to compartmentalize ordinary wear and tear and damage that warrants a deduction.
-
Caution should be used when charging tenants for materials, supplies, and professional cleaning services.
Security deposit accounting has always been an enigma to many landlords. Without exception, housing providers know how to take a security deposit from an incoming tenant, but comparatively fewer know what to do with it when the tenant leaves. Perhaps 80% of landlords in our estimation do not fully get security deposit accounting right.
We know of many landlords who are sleeping behind the wheel by not meeting the 21 calendar day deadline to return the security deposit after moving out or providing a written explanation as to why deductions were made. and the consequences have been ratcheted up.
As a bit of trivia, disputes over security deposits are the number one reason housing providers are brought to small claims courts, but the financial penalties can be anything but trivial. At one time, the landlord who lost in court would have to get out their wallets and make the tenant whole.
Fast forward to today. With greater distrust for landlords, new laws have been enacted to sue bad actors who hoard the security deposit many times over the amount the tenant paid, and there is no shortage of enterprising tenants’ attorneys willing to go after landlords who, in bad faith, fails to comply with the requirements for security deposit accounting. Housing providers who think that they are only liable for a $2K security deposit can be terribly surprised that with treble damages, it becomes a $6K dispute and even more when emotional distress is alleged.
Enter Assembly Bill 2801, a law providing greater clarity on guidelines for both landlords and tenants regarding the handling of security deposits.
This new law amends California Section 1950.5 and aims to enhance transparency and fairness in the rental relationship. Effective July 1, 2025, the legislation will ensure that tenants have clear evidence of any issues leading to security deposit deductions. One of its goals is to prevent arbitrary or unjustified charges. To achieve this end, the law requires landlords to get out their smartphones and become photographers.
Another key date is April 1, 2025. Starting then, photographs must be taken:
(i) Within a reasonable time after possession of the rental unit was returned to the landlord, but prior to any repairs or cleanings for which a deduction is made; and,
(ii) Within a reasonable time after repairs or cleanings for which a deduction is made are completed.
We are sticklers for documentation and have always said that a picture is worth a thousand words, so we can live with the new photographing requirements. Taking “before and after” photos is a best practice we always recommend, but now it is not a recommendation; it’s codified into law.
Copies of these photographs, along with a written explanation of the cost of the allowable repairs or cleanings, must then be provided with an itemized disposition of the security deposit.
The first question: What is “normal wear and tear?”
Housing providers can use the security deposit for, among other things, the purpose of repairing damages to the premises - exclusive of ordinary wear and tear - caused by the resident or their guest.
The term “ordinary wear and tear” has no clear definition in the law, but we can think of it as the unavoidable deterioration of the dwelling and its fixtures resulting from normal day-to-day use. We’ve put together a downloadable security deposition guide to provide a contrast between what constitutes normal wear and tear and what should be considered damages that warrant a deduction.
Deductions cannot be made for pre-existing defective conditions that were present before the tenant moved in. Nor can the landlord deduct for the cumulative effects of ordinary wear and tear that may have occurred over multiple tenancies.
We also need to be careful that whenever deductions are made, the amounts are reasonably necessary for the allowed purpose. Let’s say, for example, a tenant damaged a window screen that has to be replaced. The landlord can certainly charge for the replacement of that particular window screen but cannot charge for replacing all of the window screens in the unit.
Another pickle landlords find themselves in is when a tenant damages something that is not brand-new, and the question becomes what the “expected useful life” of an item that needs to be replaced. It only has to be replaced because of the tenant’s actions, but how to put a price tag on it? It may be helpful to talk to a professional who installed it, the manufacturer, or another expert and document their best guess.
Where it gets interesting is making deductions to pay for materials and supplies, and to professional cleaning services.
There was some ambiguity and debate about whether the new law really added anything to existing rules. Despite some changes in the language, our understanding is that AB 2801 did not substantially change the law but clarified the law and put an exclamation point on longstanding standards.
It seems that owners with a vacant unit were too exuberant to spruce the place up to prepare it for the next residents. Makes sense to beautify the rental unit, make it more attractive to prospective tenants, and even command a higher rent, right? Sure, but these costs for upgrading the condition of the premises cannot be passed on to the tenant who left. This sentiment was echoed by the Assembly Judiciary Committee’s analysis of the bill.
“This measure prohibits the growing trend of charging for professional cleaning and carpet services as a matter of course, and establishes that such deductions are only permissible when reasonably necessary to return the unit to the condition it was in before the tenancy began.”
In other words, housing providers cannot charge the tenant to make upgrades to the rental unit but only to restore it to its move-in condition while taking into account ordinary wear and tear. Tenants can only be charged for cleaning if they leave the unit in a condition that is significantly worse than normal wear and tear. Just as a conceptual framework to evaluate what is excessive cleaning that can be charged, here are some examples we’ll throw out.
Having an imprint on so many rental relationships for three decades, Bornstein Law has a good gut feel on what can legitimately be deducted from the security deposit and which deductions can come back to haunt landlords. When in doubt, certainly feel free to reach out to our office.
Some of our soliloquy
We’ve only scratched the surface when it comes to a myriad of security deposit rules to follow, but the main message we want to impart is that housing providers and property managers need to be hyper-focused on this aspect of their business.
When tenants experience a chapter change in their lives and want to move to new surroundings, one of the first things that crosses their mind - even before thinking about how to move a hulking couch out the door - is if and when they will get their security deposit back.
Disputes over security deposits have always been a thorn in the side of landlords, but this topic has come to the forefront. There has been increased scrutiny over instances when tenants are wrongly denied their security deposit, a lump sum of money that is sorely needed to move on. There has been a spate of legislation surrounding security deposits and increased wrath for housing providers who are perceived as hoarding a security deposit. Coupled with a phalanx of tenants’ attorneys who are adept at finding errors in security deposit accounting, we urge landlords and their agents to familiarize themselves with the rules.
Too often, security deposits are considered a chore to address at the end of the tenancy. In reality, the mindset should be that security deposits have a long life span, from the start of the tenancy to the tenant moving out to meticulous accounting after they leave. From the cradle to the grave, housing providers need to be diligent.
Owners are required to provide a Notice of Right to Pre-Inspection once the tenant gives notification that they are vacating. Failure to do so can result in the tenant receiving all of their security deposit back, even if there were damages that the owner could have reasonably deducted from the security deposit. Tenants have been finding out about this and have taken advantage of unsuspecting small owners who don't know of this rule and are shocked to learn that the tenant has the right to have their entire security deposit returned.
Our law offices have always tried to instill a culture of excellent bookkeeping and gathering documentation, but this is no longer a recommendation; it's now a law with considerable teeth.