New California Law Limits Rental Deposits to One Month’s Rent

An apartment for rent sign is posted in South Pasadena, Calif., on Oct. 19, 2022. Frederic J. Brown/AFP via Getty Images

A new California law will limit the deposit amount that landlords can charge new tenants, prohibiting them from charging more than one month’s rent.

Supporters say the change will be a relief for some in the state where the cost of rental housing is among the nation’s highest.

Gov. Gavin Newsom signed Assembly Bill (AB) 12 into law on Oct. 11. Beginning July 1, 2024, the bill will prohibit landlords from demanding or receiving security deposits in an amount that exceeds one month’s rent, regardless of whether the residential property is unfurnished or furnished.

Before the new law, California landlords were allowed to ask for up to two months’ rent for a deposit on an unfurnished rental, and up to three months’ rent for a furnished unit.

Military service members qualified for less than that, with landlords only allowed to charge one month’s rent for an unfurnished place, and two months’ rent for a furnished rental.

Assemblyman Matt Haney (D-San Francisco), who authored the bill, said during the legislative process that putting limits on rental deposits would have an “enormous impact” on renters who often have to go into debt or borrow money to secure a rental.

In San Francisco, security deposits for a one-bedroom can cost as much as $10,000, not including first and last month’s rent. Los Angeles costs are slightly lower, reaching $8,000, Mr. Haney said, according to a legislative analysis.

He commented on social media on Oct. 12 about the governor’s decision to sign the bill.

“I authored AB 12 to stop California landlords from charging two or sometimes three months rent as a security deposit,” Mr. Haney posted on X, formerly Twitter. “Yesterday it was signed into law, making California the 12th state to limit security deposits to one month’s rent.”

The legislation passed both chambers of the Legislature mostly along party lines. In the Assembly, the final vote was 53–14 on May 22. Those voting against the bill were all Republicans, while 13 Assembly members abstained.

In the Senate, it passed with a vote of 21–9 on Sept. 12, with 10 members not voting.

Sens. Marie Alvarado-Gil (D-Amador County), Catherine Blakespear (D-Encinitas), and Steve Glazer (D-Orinda) joined Republican senators in opposing the bill.

The bill allows for some exceptions. Any landlord who inherits a property or who’s a beneficiary of a family trust and owns no more than two residential rental properties or four dwelling units can charge up to two months’ rent for a security deposit.

Military service members also aren’t required to pay more than one month’s rent as a deposit.

Many labor organizations supported the bill—including the California Nurses Association, the University of California Student Association, and others—pointing to the high cost of rent and security deposits in the Golden State. The collective cost of housing is pushing people into homelessness, the unions said in a legislative analysis of the bill.

Rental prices are continuing to drop slightly as the rental market cools in California.

The median—or mid-range—cost for rent was $2,864, and nearly 71,000 rental units were available on Oct. 11, according to the latest numbers from the national real estate company Zillow. That was a decrease of $156 in monthly rent from the year before.

Nearly 17 million people rent their homes in California—or about 44 percent of the state’s population, according to a 2021 report by the California Budget and Policy Center, a Sacramento-based nonprofit that conducts research and analysis on state budget and policy issues.

California also was ranked the worst state for renters in a study released in January by Consumer Affairs, a national consumer review platform. Several factors contribute to rising rent prices in the state, Luxury SoCalRealty founder Joy Aumann told Consumer Affairs.

“One is that landlords can charge more since there is a great demand,” Ms. Aumann said. “The price of developing new housing is rising, and tenants are forced to pay these fees. There is simply not enough housing in some locations due to a housing shortage.”

The California Association of Realtors, the California Rental Housing Association, and the Apartment Association of Greater Los Angeles (AAGLA)—a nonprofit association of more than 10,000 rental housing providers and real estate professionals—opposed the legislation.

“Assembly Bill 12, which limits allowable security deposits to just 30 days irrespective of a tenant applicant’s credit history or whether a unit is furnished or not, is as terrible for the state’s renters as it is for those of us who provide badly needed rental housing,” AAGLA Executive Director Daniel Yukelson told The Epoch Times in an email on Oct. 13. “Rental property owners will no longer be able to balance the risks of accepting applicants who do not quite meet their established financial criteria for acceptance, and as a result, those who need and apply for housing will be rejected.”

Property owners will also no longer feel comfortable taking risks by accepting “seemingly nice” renters who have questionable or unsubstantiated credit histories, Mr. Yukelson noted. As a result, these borderline applicants will be rejected, he said.

The new law may also have unintended consequences regarding the state’s current housing shortage, he said.

“In the long run, without allowing housing providers to collect sufficient security deposits to cover potential damages or unpaid rent, rental property owners will likely decide to remove their properties from the rental market, and thus, further exacerbating our housing supply issues,” he said.

Mr. Yukelson says state legislators and the governor fail to understand that security deposits have nothing to do with housing affordability; rather, it’s the lack of sufficient, affordable housing that’s the problem.

The California Association of Realtors, a statewide real estate trade association, says the bill will prevent property owners from considering the size, condition, amenities, and location of properties, according to a legislative analysis of the bill.

“AB 12 denies small housing providers the flexibility needed to continue offering housing in the state, thereby exacerbating California’s housing crisis,” the association said in a statement to legislators.