New California Bill Would Limit Rental Security Deposits to One Month’s Rent

An apartment complex in downtown Los Angeles at Eighth street and Grand avenue in Los Angeles, Calif., on Aug. 6, 2020. Kent Nishimura/Los Angeles Times/TNS

California lawmakers are considering putting a limit on the amount of security deposit landlords can charge renters, drawing opposition from several of the state’s property owners and realtors’ groups.

The legislation has recently crossed a major hurdle on its way to full approval. Assembly members on May 22 advanced Assembly Bill 12, sponsored by Assemblyman Matt Haney (D-San Francisco).

If passed by lawmakers and signed by the governor into law, the bill would prohibit landlords from charging tenants more than one month’s rent as a deposit for furnished or unfurnished rental property.

The high cost of living and limited housing inventory have made California one of the nation’s most expensive states to live in for renters. The state has 17 million people—44 percent of its population—renting their homes, according to the California Budget and Policy Center’s report (pdf) released in January 2021.

“When renters can’t afford deposits they often have to borrow from predatory lenders, go into debt, or just stay put,” Haney said in a release after AB 12 passed the Assembly Judiciary Committee on April 11. “Landlords lose out on good tenants and tenants stay in apartments that are too crowded or have unsafe living conditions. Creating a rental deposit cap is a simple change that will have an enormous impact on housing affordability for families in California.”

A view of homes and apartments in San Francisco, on June 13, 2018. Justin Sullivan/Getty Images

The bill is now under consideration by the Senate. If passed by both chambers and signed by the governor, California would become the 12th state in the country to impose a one-month cap on rental security deposits.

Existing law allows property owners to charge up to two months’ rent for security fees and deposits for unfurnished rental property and three months’ rent as a deposit for furnished units. Tenants who are service members only need to pay up to one month’s rent as a security deposit for unfurnished units or two months’ rent for furnished ones.

Supporting and Opposing Arguments

Many labor organizations support the bill, pointing to the high cost of rent and security deposits required in the state. The California Nurses Association, the University of California Student Association, the Western Center on Law and Poverty, and other groups told legislators the cost of housing has pushed working families into extreme situations, such as living in a vehicle, shelter, garage, or having to share a house with multiple families.

The groups also say such a burden is pushing people into homelessness at a faster rate than the state is able to provide services, according to an April Assembly bill analysis.

Several landlords and real estate groups also oppose the measure.

Razmik Tatos, a residential and commercial real estate owner in Burbank, California, said he usually only charges a one-month security deposit on his properties but said it made more sense to charge two months of deposit on a furnished unit.

“I think [the legislation] would be unfair because the furniture could have material damage, and that would be an additional cost,” Tatos told The Epoch Times.

Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles, told The Epoch Times, “[The bill is] going to have the opposite impact that legislators would like.”

With the current system, landlords can ask applicants who have pets or have poor credit to pay a higher security deposit to make up for not meeting certain rental criteria. If AB 12 passes, some landlords may withdraw their properties from the market or stop renting to people who can pose a higher risk, he said.

“There are instances when owners want to try to work with applicants because they have a good feeling about it and [the applicant] may have a good track record with other rental properties, but they aren’t going to be able to do that,” Yukelson said.

In general, he said, renters can also negotiate security deposit payments, and possibly ask to get some of it returned after a year if they prove to be reliable.

A view of houses in a neighborhood in Los Angeles, Calif., on July 5, 2022. Frederic J. Brown/AFP via Getty Images

Another issue on landlords’ minds, according to Yukelson, was the increase in fraudulent documents used in applications. If a property owner finds he or she rented to someone using fake identification or paperwork, it could take months and thousands of dollars in court costs to evict such a tenant.

The onslaught of state regulations also has become burdensome for some property owners.

“It’s just gotten way too complicated and risky to be in this business and [some owners] will withdraw their property,” Yukelson said. “Owners are leaving the state and we’re seeing that happen left and right.”

The California Apartment Association, the largest statewide rental housing trade organization in the United States, wrote a letter to the state Assembly Judiciary Committee opposing the measure, saying AB 12 wasn’t the answer to tenants’ challenges.

“Today because of California law, a rental property owner is making a decision about renting to a tenant without a clear understanding of past rental history,” Debra Carlton, executive vice president of the association wrote in the Feb. 10 letter. “Court records are sealed for most tenants, making it almost impossible for a rental property owner to know whether a prospective tenant has a history of evictions. Further limiting a property owner’s ability to financially cover property damage or unpaid rent is an unfair imposition for rental housing providers.”

The California Rental Housing Association and the California Association of Realtors also argued against the legislation.

“AB 12 denies small housing providers the flexibility needed to continue offering housing in the state, thereby exacerbating California’s housing crisis,” the realtors’ association stated in its opposing statement included in an April Assembly bill analysis.

Rental Prices in California

The average cost of a California rental slightly declined in major metropolitan areas in April. According to a Realtor.com report published on May 18, 14 markets in the state had seen year-over-year declines, including Riverside-San Bernardino at -10.9 percent, Sacramento at -1.6 percent, San Diego at -1 percent, San Francisco at -2.5 percent, and Los Angeles at -2.1 percent.

Tech-centered San Jose was an outlier, growing by 3.2 percent during the same period. However, a year ago, San Jose was growing by 19 percent.

The recent wave of job cuts in the tech industry likely impacted the rental demand in large metropolitan areas, Realtor.com reported.

But even though prices are dropping slightly, the state still had some of the highest rents in the country. The median, or average, rental price in California was $2,950 in May, which is $60 less than a year ago, according to the national real estate company Zillow.

Rentals cost much more in some cities. The average rent for a two-bedroom apartment in San Francisco is nearly $4,741, according to the latest figures published by the national rental marketplace Rent.com. Tenants could be asked to come up with $9,482 to $14,223 for a security deposit under the current regulations. That doesn’t include the first month’s rent and other fees.