Security Deposit Rules Have Changed: What Every Property Owner Needs to Know

If you own rental property in Santa Barbara, security deposits are probably the area of landlord-tenant law you're most likely to get tripped up on — and the consequences of getting it wrong can be costly. California's security deposit statute (Civil Code Section 1950.5) has seen a wave of significant changes in the past two years, with new rules taking effect in 2024, 2025, and again in 2026. Here's what you need to know.

This post is for informational purposes only and does not constitute legal advice. For guidance on your specific situation, consult a licensed attorney.

What Actually Counts as a "Security Deposit"?

More than you might think. California law defines a security deposit by its purpose, not what you call it. Any payment collected at the start of a tenancy to reimburse the landlord for future potential costs — whether labeled a "pet fee," "cleaning deposit," "key deposit," or anything else — is legally treated as a security deposit. That means it must be refundable, it counts toward the deposit cap, and all the rules below apply to it.

This has caught landlords off guard in court. One California court found that a landlord charging a higher first month's rent (later reduced upon renewal) was actually collecting an illegal security deposit. Another court ruled that a nonrefundable "Tenant Initiation Expense Reimbursement Fee" was a security deposit violation. The takeaway: if a charge is meant to cover potential future costs, don't label it as nonrefundable — because under the law, it isn't.

How Much Can You Collect?

The New One-Month Cap (Effective July 1, 2024)

California law now limits security deposits to one month's rent for nearly all residential tenancies, regardless of whether the unit is furnished or unfurnished. This is a significant change from prior law, which allowed up to two months' rent for unfurnished units and three months' for furnished ones.

Importantly, this cap is not retroactive. If you lawfully collected a larger deposit before July 1, 2024, you are not required to refund the excess. But for any new tenancy starting after that date, one month is the ceiling — and that cap applies to the combined total of all deposits and fees that qualify as a security deposit under the law.

The "Small Landlord" Exception

There is a narrow exception for landlords who qualify as "small." To qualify, you must be (1) an individual person or an LLC where all members are individuals, and (2) own no more than two residential rental properties with a combined total of four or fewer units offered for rent. If you meet both criteria, you may collect up to two months' rent as a security deposit.

However, this exception does not apply when renting to a military service member — more on that below. And if your property is held in a family trust, the qualification question can get complicated enough that consulting an attorney before relying on this exception is strongly advisable.

Rules for Military Service Members

California has added additional protections for tenants who are active-duty military service members. In no case may a service member be required to pay a security deposit exceeding one month's rent. Additionally, a "small landlord" may not refuse to rent to a service member simply because they can only collect one month's deposit from them — doing so would be a fair housing violation.

A newer provision (effective April 1, 2025) requires that if a landlord charges a service member a higher-than-standard deposit due to their credit history or other individual factors, the landlord must provide a written explanation, return the additional amount after six months of on-time payment, and specify the return date in the lease.

New Requirement: Take Photos

Effective July 1, 2025, California law requires landlords to photograph the rental unit immediately before or at the inception of every tenancy. This is no longer optional best practice — it's a legal requirement.

Additionally, effective April 1, 2025, if you make any deductions for repairs or cleaning, you must provide photographs taken:

• After possession of the unit was returned to you, but before any repairs or cleaning begins; and

• After those repairs or cleaning are completed.

These photos must accompany the itemized deposit disposition you send the tenant. Good photo documentation protects you — and the law now requires it.

Returning the Deposit: The 21-Day Rule

Once a tenant vacates, you have 21 calendar days to provide them with an itemized statement of any deductions and return any remaining balance. The clock starts when you take possession of the unit — not necessarily when keys are returned. If it's otherwise clear the tenant has left (they've told you in writing, for instance), the 21-day period can begin even without a formal key handoff.

The itemized statement must include:

• The total amount of security deposit collected

• Each deduction, with a written explanation of the cost

• Copies of receipts, bills, or invoices for any repair or cleaning work

• The required photographs (for tenancies that began on or after July 1, 2025)

If you're doing the repair work yourself or using an employee, the statement must describe the work performed, the time spent, and the hourly rate. If a contractor does the work, you need to provide their bill or invoice, including their name, address, and phone number.

Estimates are allowed under limited circumstances. If a repair genuinely cannot be completed within 21 days, you may provide an estimated cost. But you must still send a partial refund based on that estimate, and you must follow up with the actual documentation within 14 days of the work being completed.

New in 2026: Electronic Refunds

Starting January 1, 2026, if a tenant paid their security deposit electronically (or designated a bank account in writing for electronic payments), the landlord is required to refund any remaining deposit balance to that same account electronically. This rule applies to single-tenant situations; multi-tenant households have a different default (a single check made payable to all adult tenants).

When the electronic refund requirement applies, the landlord must notify the tenant of their right to receive the refund electronically. This notice must be provided within a reasonable time after either party gives notice to terminate the tenancy (a notice embedded in the original lease is not sufficient).

Landlords and tenants can also agree — at any point, including at the start of the tenancy — to handle the refund electronically even when the law doesn't require it. They can also agree to receive the itemized statement and receipts by email.

What You Can — and Cannot — Deduct

What's Allowed

The security deposit can be used to cover:

• Unpaid rent

• Damage to the unit caused by the tenant or their guests (beyond ordinary wear and tear)

• Cleaning costs necessary to return the unit to the condition it was in at move-in

• Replacing personal property the tenant was obligated to return or restore

What's Not Allowed

You cannot charge the tenant for:

• Damage or defects that existed before the tenancy began

• Ordinary wear and tear — the natural, unavoidable deterioration from normal day-to-day use

• Accumulated wear and tear across multiple tenancies

• Application processing fees (beyond the legally allowed screening fee under Civil Code 1950.6)

The "Ordinary Wear and Tear" Line

This is where most disputes happen. The law doesn't define "ordinary wear and tear" precisely, but courts generally treat it as the inevitable deterioration that comes from normal use — a scuffed wall, a faded carpet that's years old, a sticky door hinge. When a tenant damages something that wasn't brand new and wouldn't have needed replacement except for their actions, the common approach is to pro-rate the cost based on the item's expected useful life and how many years of that life the tenant's actions consumed.

Cleaning and Carpet Cleaning

Effective January 1, 2025, California law explicitly states that you cannot charge a tenant for professional cleaning or carpet cleaning unless it is genuinely necessary to return the unit to the condition it was in at move-in. You cannot make it a routine charge — it must be tied to an actual need. If the tenant left the unit in the same level of cleanliness as when they moved in, you cannot charge for cleaning, period.

No Using the Deposit to Fund Upgrades

Repairs and cleaning charges must be limited to restoring the unit to its move-in condition. You cannot use the tenant's deposit as a subsidy for improvements, upgrades, or replacements that go beyond what was damaged. If you repair a damaged window and use that as an opportunity to upgrade to double-pane glass, you can only charge the tenant for what a like-for-like restoration would have cost.

Items Not Identified at the Pre-Move-Out Inspection

If you conduct a pre-move-out walkthrough (which California law requires you to offer the tenant), you are generally prohibited from deducting for anything that wasn't noted in the itemized statement you gave the tenant at that inspection — unless it was hidden by the tenant's belongings or arose after the inspection.

The Penalty for Getting It Wrong

Non-compliance is expensive. If a landlord in bad faith fails to meet the 21-day deadline, withholds deposits improperly, or fails to provide required documentation, the law provides that the landlord may forfeit the right to claim any portion of the deposit. Beyond that, a bad faith retention can expose the landlord to statutory damages of up to twice the amount of the security deposit, on top of any actual damages the tenant can prove.

What Happens When You Sell Your Property?

When a rental property changes hands, security deposits don't disappear — they follow the tenant. Upon transfer of ownership, the prior landlord must either transfer the remaining deposit balance to the new owner (with written notice to the tenant) or return it directly to the tenant. If the prior landlord fails to properly transfer the deposit and the new owner knew about it, the new owner can be held jointly liable to the tenant for the full amount.

Local Laws in the Santa Barbara Area

The good news for property owners in this region is that none of the local jurisdictions — the City of Santa Barbara, unincorporated Santa Barbara County, the City of Goleta, or the City of Carpinteria — have enacted security deposit ordinances that go beyond what California state law already requires. Security deposit collection and return in this area is governed entirely by Civil Code Section 1950.5.

That said, there are related local rules worth knowing about:

Santa Barbara County — Relocation Benefits. If you own a property in unincorporated County territory and a tenant is displaced because of a serious code violation requiring the unit to be vacated, or because you are demolishing or substantially rehabilitating a building with four or more units, Santa Barbara County's Chapter 44 ordinance may require you to pay relocation benefits to the displaced household. Those benefits — equal to three months of fair market rent for the area or $7,000, whichever is greater — are required in addition to returning any security deposit. The two obligations are separate and independent of each other.

City of Santa Barbara, Goleta, and Carpinteria — Just Cause Eviction Protections. All three cities have local just cause eviction ordinances that go beyond state law in some respects. While these rules don't affect security deposit mechanics directly, they do affect the circumstances under which a tenancy can be ended, which in turn affects the timing of deposit returns. Goleta's ordinance (Chapter 8.19) and Carpinteria's (Chapter 7.04) both include relocation assistance requirements for no-fault just cause evictions, which again are separate from and in addition to the security deposit return obligation.

If you are unsure whether your property falls within city limits or unincorporated County territory — which determines which set of local rules applies — that's worth confirming before you face a situation where it matters.

Managing Deposits the Right Way

Security deposit compliance isn't just a legal obligation — it's a reflection of how you manage the relationship with your tenants. Getting it right from the start (clear move-in documentation, proper collection amounts, organized receipts, timely returns) protects you legally and builds the kind of trust that tends to lead to better tenancies overall.

If this feels like a lot to track, that's because it is. California's security deposit law is detailed, and it keeps changing. A professional property manager stays current on these rules as a matter of course — handling documentation, coordinating move-out inspections, processing dispositions, and managing refunds so you don't have to worry about a misstep costing you far more than the deposit itself.

Want to know how we handle security deposits for the properties we manage? Contact us to learn more about our approach.