2025 Security Deposit Guidance for California Landlords

Almost a year into the implementation of California's new deposit cap, questions remain about what landlords can and cannot collect. This guidance outlines how to stay compliant with state law, especially when structuring new leases.

What Changed in 2024?

Effective July 1, 2024, California law caps security deposits at one month’s rent for most rental housing. This applies to all new tenancies, regardless of whether the unit is furnished or unfurnished.

Reminder: These caps do not apply to tenancies that began before July 1, 2024.

Exception for Small Owners

Small landlords may still collect up to two months' rent as a deposit if all the following apply:

• The owner is a natural person or all LLC members are natural persons

• The owner has no more than two residential properties in California

• The properties contain a combined total of no more than four rental units

Caution: Service members are protected under both California law and federal law, and landlords may not collect more than one month’s rent as a security deposit from them, even if the owner qualifies for the small landlord exception.

Last Month's Rent: Proceed With Caution

Many landlords are used to collecting both a security deposit and the "last month's rent" at move-in. Under the new law:

• If the total collected exceeds the one- or two-month cap (depending on eligibility), you are out of compliance.

• "Last month's rent" is legally treated as part of the security deposit unless:

  • It is collected as part of six months or more of prepaid rent, and

  • The prepayment is clearly documented as advance rent in the lease

KEY POINT: A standalone "last month’s rent" charge for one month does not qualify as prepaid rent. It counts toward the deposit cap.

Local Rules Still Apply

In Berkeley, even if you comply with the state cap, local regulations impose further limits:

• Once a lease starts, you cannot increase the deposit, even if the rent goes up or you add tenants.

• Deposits must be returned within 21 days, with an itemized statement and documentation.

• Annual interest on deposits is due for rent-controlled and partially covered units.

Tips for Compliance

• Avoid labeling any charge as "last month’s rent" unless it is part of a valid six-month rent prepayment.

• Document all payments clearly in the lease and receipts.

• For furnished units or households with pets, remember that no additional deposit may be charged beyond the legal limit.

Legal Reference

• Civil Code § 1950.5(c): Defines a deposit to include rent prepayment unless structured properly

• AB 12 (2023): Established the current cap on deposits statewide