After a lease ends and the tenant moves out, it’s guaranteed that there will be some amount of work that will need to be done to get the property ready to rent again.

This can range anywhere from just a good cleaning to a full scale rehab project. If it’s the latter, this can take weeks to complete and cost thousands of dollars.

Many landlords are left wondering how much of the security deposit they can use to help cover the costs of getting the property prepped and presentable for a new tenant.

The hard part is determining what damage is considered tenant responsibility and what is normal wear and tear, and how much you can charge for each given item.

Also, how long do you have to complete repairs and return the unused portion of the deposit to the tenant?

Some landlords view the security deposit as a bonus that they get for renting out their property that they will keep no matter what. This is not only unethical, but can have some serious legal ramifications as well.

All of this is covered under California Civil Code Section 1950.5 but we’ll go ahead and break it all down for you here.

Security Deposit Limits

Before you get to deducting form a security deposit, it’s important to know how much you can hold as a security deposit in the first place.

California has placed hard limits on this. While the standard amount is typically one month’s rent, you can hold up to:

• 2 times the monthly rent for an unfurnished rental
• 3 times the monthly rent for a furnished rental

This law exists to prevent landlords from holding an unreasonably high security deposit and then not returning it to the tenant at the end of the lease.

When you write your lease, it’s important that you don’t characterize the security deposit as “nonrefundable.” This is illegal under California law.

It’s also important that your lease specifically states that the deposit cannot be used as last month’s rent. Allowing the tenant to use the security deposit as last month’s rent can put you in a tough position if there are extensive tenant caused damages. It’s a lot easier to deduct from a security deposit then go after them for more money.

What The Security Deposit Can Be Used For

California law is also very clear on this. Landlords can use a tenant’s security deposit for:

• Any unpaid rent
• Repair of damages to the property beyond normal wear and tear
• Any cleaning needed to get the property back to the level of cleanliness it was at move in

The best way to document the condition of the property at move in is with pictures or even a video walkthrough. This will make it very easy to compare the condition at move out with the condition before the tenant lived there.

Many landlords do not understand what is considered normal wear and tear and what is beyond that.

Normal wear and tear is the average deterioration of a property over its natural lifetime, not caused by neglect or abuse of the property.

California law does not do a very good job of defining normal wear and tear, but HUD does. According to HUD, here are some examples of normal wear and tear vs tenant damage:

It is also helpful to know the normal life expectancy of different major items in your rental property. HUD provides examples of this as well:

If any of these items are at or near their life expectancy, landlords shouldn’t charge tenants for repair or replacement regardless of their condition at move out. These items need to be replaced regularly anyway.

Helping The Tenant Get Their Deposit Back

After a tenant gives you a 30 day notice that they will be vacating the property, you need to notify them of their option for an initial inspection, or as well call it, a pre-move out inspection.

If the tenant does not respond to this notice or does not want to do it, you don’t have to.

The purpose of this inspection is to walkthrough the property with the tenant and point out anything beyond normal wear and tear to give them the opportunity to fix it without having it deducted from their deposit.

Once you agree on a day and time to conduct the inspection, you must give a 48 hour written notice prior to the inspection, unless you both agree to forgo this requirement in writing. This allows the landlord to conduct the inspection whether the tenant is present or not.

Once completed, you should provide the tenant with an itemized list of deductions you plan to make based on the condition of the property. This can cover repairs of anything beyond normal wear and tear or cleaning. The tenant then has the opportunity to take care of these items before they move out.

The Disposition

After the tenant moves out and you perform any repair or cleaning that you will be deducting from the deposit, you need to return the remainder to the tenant.

A commonly missed deduction is for unpaid water and trash bills. Be sure to call both the local sanitation company and the local water company to see fi the tenant has an outstanding balance because these charges do not follow the tenant like and electric or gas bill, they stay with the property.

You must provide the tenant with an itemized statement and charges incurred for all work over $125 including:

• All charges for material or supplies with a copy of the invoice or receipt.
• If you or one of your employees performs the work, an explanation of the work performed as well as time spent and the reasonable hourly rate charged.
• If performed by an outside vendor, a copy of the bill, invoice or receipt from the vendor as well as their name, address and phone number.

This must be done within 21 calendar days of the tenant vacating the property.

If it can’t be done within 21 days, you can deduct a good faith estimate as long as you provide an itemized statement. Within 14 days of completing the work, you must provide the tenant with the actual itemized statement. Even if you don’t have a forwarding address, send it to the last known address which would be your rental property. Keep a copy of the envelope if it gets returned by the post office. This will protect you if you find yourself in small claims court over a deposit dispute.

If you don’t do this, even if the tenant trashed your house, they can sue you for the amount of the deposit plus twice the amount in damages if the judge determines you retained the deposit in bad faith.

Even if you evict a tenant that potentially owes you thousands in unpaid rent, you MUST perform a disposition. There would be nothing worse than having to give a delinquent tenant their deposit back because you didn’t follow this law.

Summing it up

There’s a lot to California Civil Code Section 1950.5, but this article hit on the most important parts.

If you don’t ever want to have to worry about handling a tenant’s deposit, give us a call or contact us. Move in, pre-move out, and move out inspections as well as deposit dispositions are just a few of the services that we provide here at Mesa Properties.

For a comprehensive guide to managing rental property, check out this resource.