California's One-Month Security Deposit Cap (AB 12): What Landlords Need to Update

For decades, California landlords could collect up to two months' rent as a security deposit on an unfurnished unit, and up to three months' on a furnished one. Assembly Bill 12 (Haney, 2023) changed that. As of July 1, 2024, most California residential security deposits are capped at one month's rent, regardless of whether the unit is furnished or unfurnished. The reform is codified at Civil Code § 1950.5.

If you own or manage California residential rentals, this change affects (1) the amount you can collect from a new tenant, (2) what your written lease may contain, and (3) how your intake forms describe the deposit. Each is worth a look.

The new general rule

Under the amended § 1950.5, the security deposit on a residential rental in California cannot exceed one month's rent. "Security deposit" is defined broadly: any deposit, fee, or charge, however labeled, that is intended to secure performance of the lease falls within the cap. The label "last month's rent," "cleaning fee," "pet deposit," or similar does not change the analysis if the function is to secure the tenant's obligations. Pet deposits in particular have been a frequent compliance gap and are generally folded into the one-month total.

Two exceptions deserve attention.

The small-landlord exception

A natural person (or a limited-liability company in which all members are natural persons) who owns no more than two residential rental properties that collectively contain no more than four dwelling units may collect up to two months' rent as a security deposit on an unfurnished unit. This exception is narrow — corporations, larger LLCs, and trusts generally do not qualify, and the unit-count is across all of an owner's properties, not just the property at issue.

The small-landlord exception does not apply to military service members; the cap reverts to one month for any tenant who is on active duty.

Service members

Tenants who are members of the U.S. Armed Forces or California National Guard called to active duty are subject to the one-month cap regardless of who the landlord is, by the express terms of the statute.

What landlords should update

Several common lease provisions and intake practices need adjustment to fit the new statute. For most California rentals, that means:

• Cap the security deposit at one month's rent on new leases and at renewal, unless the small-landlord exception clearly applies.
• Roll pet deposits into the one-month total rather than collecting them separately. Refundable pet deposits collected on top of a one-month general deposit will likely fail the statute on audit.
• Stop collecting "last month's rent" as a separate item on new leases. Prepaid rent is not a security deposit, but the line between the two is fact-driven, and treating both as a deposit is the safer default. Where a landlord intends to collect a true prepayment of rent, the lease should say so explicitly and account for it as rent rather than as security.
• Review move-in fee structures. Non-refundable cleaning fees and the like have always been disfavored by California courts; bundling them into the deposit cap reduces the risk of a small-claims defense based on unauthorized fees.
• Confirm the small-landlord exception in writing before relying on it. A clean memo of how many properties and units the owner has, kept with the property file, helps if the question is raised later.

Lease forms purchased years ago — or downloaded from generic online services — are unlikely to reflect the current cap. Renewals are a good time to refresh.

What did not change

A few things often confused with the cap remain in place:

• Application screening fees are still allowed and are governed by Civil Code § 1950.6, not § 1950.5.
• Itemized statement and 21-day return rules under § 1950.5(g) still apply at the end of the tenancy. The cap changes how much can come in; not how it has to be returned.
• Holding deposits to take a unit off the market while screening is completed remain permissible if structured properly, though the funds become a security deposit subject to the cap once the lease is signed.

Practical takeaways

For a typical California landlord, the AB 12 update is mostly a math change: one month's rent, period, with a narrow carve-out for very small owners. The lease needs to say so, the pet-deposit and "last month" practices need to change with it, and the move-in math should be re-run. None of this is exotic — but a lease that still authorizes a two-month deposit going forward is a defense the firm sees regularly in security-deposit and unlawful-detainer cases, and it's avoidable.

If you'd like the firm to review a current lease against the new statute, or to draft a clean lease that reflects current California requirements, please reach out.

This article is general information and not legal advice. The statute and its interpretation can evolve; specific situations need specific review.