California AB 12: Big Changes to Security Deposit Rules Explained!

Welcome back Inside Uplift Property Management! I'm Tommy Perfect CEO and broker here at Uplift and today we want to do a legal update on California Assembly Bill 12 all about California security deposits.

So what AB12 really is it's talking about limiting what you can take as a security deposit and really if you haven't already started implementing this in your business or in your rental property you are really behind because it went effective July 1st of 2024 what the gist of the bill is is it's going to prohibit a landlord from taking more than one month's worth of rent as a security deposit and they actually use the term "Securities" and that includes all fees or charges outside of the security deposit that are going in advance of the rent with a couple exceptions that we can talk about but it also covers furnished and unfurnished units so here's those exceptions.

First off you have to be a natural person or an LLC where all the owners are natural persons that means you or me not a corporation that actually owns a property right you also are limited on the unit count so you can have two properties not making up a total of more than four rental units so if you own a duplex and you also own a Triplex that's five units and those are all rented out units you are not qualifying for that exception but if you just have a single family home that you own it as a natural person person then you are able to still charge up to twice the month the A month's worth of rent as a security deposit.

Now going into all of those other charges what they are calling Securities right this includes any additional deposits like if you have an HOA that requires you to have a key deposit or something that you have with them or pet deposits which pet deposits are a struggle already cause you limit what you are allowed to charge to that deposit so that's an additional deposit so all of those kind of things are those additional Securities that are going to be calculated in to the one month's worth of rent requirement or the 2 months worth of rent requirement if you qualify for that exception so essentially if your rent is $2,000 a month your security deposit can only be $22,000 a month if you also have a tenant that has a pet and you want to charge a pet deposit well really you're still capped at that $2,000 one other exclusion to this is active service members they are still only at that one month's rent even if you are a natural person that qualify for the exception the active service Duty members still it's one month's rent no matter.

What long gone are the days that you are able to collect first month's rent a security deposit and last month's rent this bill actually changes the last month's rent in a legal sense so really you can only charge first month's rent in that security deposit you which I highly recommend you charge the first month's rent when you charge it don't PR rate when you start charge the full first month's rent and the security deposit if you do qualify for that exception you can charge that last month's rent but you might as well just call it a security deposit and increase that security deposit up to that two times amount if you're qualifying for that exception what the law is actually saying is that when you have that last month's rent it is included in that term Securities right? so you can't actually charge that because essentially you're going to have to hold that just as if you're going to hold a security deposit but then you limit it to that you know use for only the the rent at the end of the tenency there is one exception to the last month's rent cause you know these bills can't be just straightforward but if you charge 6 months or more of rent that is your prepayment so if you have somebody that comes along and they say "hey I really want to rent it out I want to pay you 3 months in advance" that's actually technically against the law now you have to have a minimum of 6 months in advance when you're going to collect that as security for your lease.

In conclusion, you've got AB12 limits you to one month's rent that's really the best practice you're going to find that you're going to be more competitive on the market if you aren't trying to increase that security deposit when we have this changing Market a cooled off Market rentals are a little bit longer to get rented right now your renter is going to expect to have the security deposit be one month's worth of rent and stopped at that again remember any additional deposits are included in that calculation for AB12 and your total amount that you can do and then you can't charge that last month's rent anymore so thank you and if you have any other questions feel free to reach out to us here at Uplift we're always happy to go over these little updates and make sure that everybody can push the industry forward and we can all be good landlords going forward.