Do you own rental properties in the San Diego area? If so, you're likely aware that California is known for having rental laws that are more tenant-friendly than other parts of the country.
As such, it's important to always be conscious of how you're handling every aspect of managing your rental property, in order to avoid time-consuming disputes or legal troubles.
One example of an aspect of managing a rental property that requires great care is security deposits. There are strict guidelines you should follow as a landlord in San Diego when it comes to collecting, storing, deducting from, and returning security deposits.
When it comes to security deposits, it's truly important to document all aspects well, use good judgement and reasonable assessment, and follow California's landlord-tenant law to the letter. If you aren't well-versed in the state's landlord-tenant law, it may be a good idea to enlist the help of professionals.
Let's take a look at what you need to know about security deposits in California.
An Overview of How to Handle Security Deposits in California
The Security Deposit Documentation Process
In California, the security deposit documentation process should begin when the tenant pays their security deposit at the time of move-in, and a move-in inspection is performed.
The details of the property condition should be documented on an inspection form—the details and photos should be captured room-by-room. Then, this form should be saved until it's time for the tenant to move out.
Both the tenant and the landlord need to be provided with a copy of this document, and should keep it in a safe place for future reference. If you don't retain access to the checklist and photos from the move-in inspection, you may not be able to prove what condition the unit was in before the tenant moved in.
Holding the Security Deposit
In certain states, it's necessary for a security deposit to be held in an interest-bearing account when a landlord has a certain number of properties. In this scenario, it's often necessary to return a tenant's security deposit along with the interest that the deposit accrued during the time of the lease.
However, in California this is not the case. While you should be sure to store tenants' security deposits in a safe location and inform tenants of where their deposits are being stored, it's not necessary for security deposits to be stored in interest bearing accounts.
Naturally, the security deposit cannot be used for any purpose except those specified in the lease agreement, in accordance with California's landlord-tenant laws.
In the final stretch of a tenant's occupancy, they have the right to a pre-move inspection, which can be held no sooner than 14 days before their move-out.
This is an inspection during which aspects that may be cause for a deduction of full withholding of a tenant's damage deposit are pointed out to the tenant. These items are to be listed on an inspection form that's provided to the tenant.
This gives the tenant the opportunity to remedy these issues before their tenancy is over, to avoid charges to their security deposit.
Itemizing Deductions and Returning the Deposit
Once the tenant has vacated the property, a move-out inspection should be conducted, in which details are documented on the same form that was filled out during the move-in inspection.
Photos should be taken to document any changes in the condition of the unit.
Any damages beyond normal wear and tear can be deducted from the tenant's security deposit amount.
Landlords in California then have 21 days to complete any necessary repairs or estimates, itemize all the deductions to be made, and send the documentation and the remaining funds to the former tenant.
How to Protect Yourself
One of the main reasons why landlords collect security deposits in the first place is to protect themselves against risk.
No matter how effective your screening process is, or how certain you feel that a given tenant will treat your property with care and respect, both accidents and negligence are always possible, which can necessitate retaining some or all of the deposit.
That's why it's hugely important to be meticulous in your record keeping at every stage of the process.
When you have detailed notes and extensive photographs to document the state of your property, you can feel assured that the state of the property at both move-in and move-out time are not open to interpretation.
When unfortunate situations emerge that result in landlords and tenants ending up in a battle in small claims court, it's typically because the landlord has cut corners in their documentation process and failed to communicate their expectations clearly.
Some unscrupulous landlords will even attempt to make deductions to tenants' damage deposits for unwarranted issues— such as normal wear and tear—that it is not a tenant's responsibility to cover.
For a more comprehensive overview of what kind of deductions are permitted from security deposits in California, read this helpful overview.
Managing Security Deposits: The Bottom Line
As you can surely imagine, the security deposit process has the potential to be highly contentious. When there is a sum of money on the line, emotions can run high, as tenants may not agree with your assessment of the damage to the property.
As is the case with many aspects of being a landlord, you should make every effort to treat tenants fairly, communicate your expectations clearly, and make a comprehensive record of every action that you take, both to protect yourself legally and to stay organized.
Because it can be stressful to stay on top of security deposit procedures—particularly if you own numerous properties—many landlords choose to enlist the help of an experienced property management company.
With an effective property management team on your side, you can feel assured that each step involved in fair and legal collection, storage, and return of tenants' security deposits is being handled correctly, freeing you to focus on other opportunities.
Disclaimer: Please keep in mind that while this article is a helpful overview of security deposits in California, it doesn't constitute legal advice. For specific legal help, get in touch with a local expert in landlord-tenant law.