California Small Landlord Security Deposit Exception

In California, security deposits are capped at 1 month's rent since AB 12 took effect on July 1, 2024. Up to 2 months is allowed only for landlords who are individuals (or LLCs of individuals) owning at most 2 rental properties with 4 units total — and never for service members. So yes, a small landlord may still be able to charge two months' deposit, but only if you fit those conditions exactly, and the precise eligibility language is in Cal. Civ. Code § 1950.5, which you should read before you collect a dollar.

What the exception actually requires

Three things have to line up at once for the higher amount:

• You are an individual, or an LLC whose members are all individuals. A corporate owner or a fund does not qualify.
• You own at most 2 rental properties, and those properties together contain no more than 4 units total.
• The prospective tenant is not a service member. If the applicant is a service member, the 1 month cap applies regardless of how small you are.

Miss any one of those and you are back to 1 month's rent. The statute controls how each term is defined — what counts as a "rental property," how units are counted, how ownership interests are treated — so read Cal. Civ. Code § 1950.5 directly rather than relying on a summary, including this one. Our California security deposit laws guide keeps the statute link and the deadline in one place.

A worked example: a duplex owner in Sacramento

Say you own a duplex and a single-family rental, both in your own name. That's 2 properties and 3 units total — within the exception's limits as written. You're renting the upstairs duplex unit, a two-bedroom, for $2,000 a month.

Step 1: confirm which cap applies to this tenant

You're an individual owner, at 2 properties and 3 units. The applicant is a nurse at a local hospital, not a service member. On those facts, the small-landlord exception as worded in the cap note applies, and up to 2 months' rent is available to you.

Before you write the number into the lease, check the statute language against your actual holdings. If you also hold a one-third interest in a fourplex through a partnership with two friends, that changes your count — and whether it does is a statutory question, not a judgment call. You can also run the numbers through our security deposit limit checker as a starting point, then verify against § 1950.5.

Step 2: decide what you actually charge

Eligible for 2 months doesn't mean you must take 2 months. Your options here:

• 1 month: $2,000
• 1.5 months: $3,000
• 2 months: $4,000

You settle on 1.5 months, or $3,000, because the applicant has strong references and a $4,000 deposit on top of first month's rent is a $6,000 cash ask that narrows your applicant pool. Total collected at signing: $2,000 first month's rent plus $3,000 deposit = $5,000.

Step 3: write it into the lease correctly

The lease should state the deposit amount as a dollar figure and identify it as a security deposit, separate from the first month's rent. Don't relabel part of it as a nonrefundable "admin fee" or "cleaning fee" to sidestep the cap — how deposits and charges are characterized is governed by the statute. A California lease agreement built for the state is easier to keep consistent than a generic form, and the same discipline applies to every other clause you write; see how to write a rock-solid residential lease agreement for the structure.

Step 4: document the unit at move-in

The tenant moves in March 1. You walk the unit together and record the condition of every room with dated photos — scuffed baseboard in the hallway, a chipped tile behind the stove, carpet clean but worn in the bedroom doorway. Both of you sign the checklist. Rentmark handles this part with move-in and move-out inspection checklists that hold photos alongside the written notes, so the two walkthroughs sit side by side later. That $3,000 is the tenant's money until you can show, item by item, why some of it isn't.

Step 5: the move-out math

The tenancy ends and the tenant returns the keys on June 3 of the following year. California requires the deposit to be returned within 21 calendar days after the tenant moves out, with an itemized statement of any deductions — so your deadline here is June 24.

Your move-out walkthrough finds a broken interior door that wasn't in the March photos and unpaid rent for the final partial month. Suppose you total $450 for the door repair, supported by the contractor's invoice, and $600 in unpaid rent. That's $1,050 in deductions against a $3,000 deposit, leaving $1,950 to return, along with the itemized statement showing each line.

What you may deduct, what documentation the itemized statement must include, and how normal wear and tear is treated are all governed by Cal. Civ. Code § 1950.5 — read it before you finalize any deduction. Cleaning charges in particular trip people up; see can a landlord keep a deposit for cleaning in California?

How the answer changes if one fact is different

If the applicant is a service member

Change one thing in the example above: the applicant is active-duty military. The exception is never available for service members, so your cap drops to 1 month's rent — $2,000, not $3,000. Nothing about your own ownership profile changes that. Everything else in the example, including the June 24 deadline, stays the same.

If you buy a third rental

Say you close on a second single-family rental in year two. You now own 3 rental properties, which is past the "at most 2 rental properties" limit as worded, so the exception no longer describes your situation. For new tenancies after that point, plan on 1 month's rent. What happens to a deposit already collected under a lease signed while you qualified is a statutory question — don't guess, and don't assume you get to keep collecting at the old level on renewal.

If you hold the duplex in an LLC

The exception as written covers LLCs whose members are individuals. An LLC you own alone, or with your spouse, may still fit — but if any member is a corporation or another entity, read the statute closely before you assume you qualify. Ownership structure is exactly the kind of detail where the statutory text, not a blog summary, decides the answer.

If the rent is higher

The cap is expressed as months of rent, so the dollar ceiling moves with the rent. At $3,200 a month, a qualifying small landlord's 2-month ceiling is $6,400; the non-qualifying 1-month cap is $3,200. The eligibility test doesn't change with the rent — only the arithmetic does.

This is general information, not legal advice. For your own situation, read Cal. Civ. Code § 1950.5 in full or talk to a California attorney.