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What Can Be Deducted from a Security Deposit? | San Mateo Property Management - Article Banner

Security deposits are often a source of friction between rental property owners and tenants in San Mateo. Typically, landlords will be quick to withhold money from a deposit to make any repairs needed at the property before it’s rented to another resident. And tenants will likely expect to get their full deposit back even if they left holes in the walls and food in the fridge. 

Avoiding this tension requires communication, a strong lease, and a willingness to work together to manage expectations and responsibilities. 

When you’re renting out a property, you also need to understand California’s strict security deposit laws. It’s essential that you understand what exactly you’re permitted to deduct from a security deposit. If you make an unlawful deduction, your tenant can push back and even take you to court. If you lose, you’ll not only be required to return the deposit in full, you’ll also be charged some punitive damages that can add up to three times the amount of the security deposit.  

It’s a tough mistake to make.  

We work with tenants and with owners to manage expectations and to set up some boundaries for what can and cannot be paid for out of a tenant’s deposit. One thing you have to remember is that even while you hold the deposit, those funds belong to your tenant. It’s not your money until you make a claim on those funds based on one of the criteria we’re going to talk about in this blog. 

First Things First: Security Deposit Basics

Before we dive into what you can and cannot deduct from a security deposit, let’s make sure you understand how a deposit is to be collected and held. California has laws around that as well, and a lot of San Mateo landlords miss them. 

  • What You Can Collect in a Security Deposit

There are limits to what you can collect in a security deposit. California allows you to ask tenants for up to the equivalent of two months’ rent when you’re leasing an unfurnished rental property. If you happen to be leasing a furnished rental property, you’re allowed to ask up to the equivalent of three months’ rent as a security deposit.  

Here’s the simple math: a $3,000 per month rental property would require you to ask for a deposit that’s no more than $6,000, assuming that property is unfurnished.

Make sure you’re collecting the lawful amount, and remember: just because you can collect up to two months of rent doesn’t mean you should. Rents are higher, which means deposit amounts are higher. You might have a difficult time finding a qualified tenant with enough cash to bring a huge security deposit plus the first month of rent to the table. Generally, a one-month equivalent usually covers what you need in a security deposit. 

  • Defining a Security Deposit

It’s illegal to charge a nonrefundable security deposit. 

All security deposits in San Mateo are refundable, and the language in your lease agreement must state that the tenant has the opportunity to have the entire amount returned at the end of the lease term.

  • Holding the Security Deposit

Under California law, landlords are required to hold the deposit in a financial institution, but there are no regulations or restrictions for where or how it is held. It does not need to earn interest (some local laws do require this, such as in San Francisco), and it does not have to be held in a separate account or financial institution from where other money is held. Just make sure you document where you have it and how much was collected.  

  • Security Deposit Timelines 

You’ll need to return your tenant’s security deposit within 21 days of that tenant moving out. If you’re going to withhold all or part of the deposit, you must also include an itemized statement that reflects how much money you’re keeping and why. We’ll talk more about this later in the blog. 

Now that you have a general idea about how to collect and when to return a deposit, let’s go into detail about what you can deduct for and what you must pay for yourself. 

San Mateo Security Deposits Can Cover Unpaid Rent

The first and most basic reason you might keep a tenant’s security deposit is to pay for any rent that is outstanding. If the tenant moves out with a balance, you can apply the security deposit to any rent that is overdue or owed. 

Maybe your tenant did not pay for the last month of rent at all. Use the security deposit. 

Maybe your tenant made a partial payment the month before. The security deposit can catch them up. 

These scenarios are not ideal. You never want tenants to feel like it’s acceptable to use the security deposit as a rent payment. But, if they have vacated the property and they still owe you money, you should look at the security deposit first. 

You can also use the security deposit for any unpaid utility bills that the tenant left behind. 

Damage to Your San Mateo Rental Property  

The security deposit is available to you when you have damage left behind by your tenants. You should use it to pay for any repairs or replacements that are a result of the tenant’s actions, whether they were intentional or accidental. 

A couple of things about damage: 

  • It has to be well-documented so you can prove that the home was not in damaged condition before the tenants move in.
  • It cannot be general wear and tear, which is your responsibility to pay for as the property owner. 

You’ll need to provide your tenants with an opportunity to do a pre-move out inspection before the end of the lease. This is a chance for you to walk through the property with your tenants and point out any potential deductions. Your tenants will have time to fix whatever needs to be fixed so that there isn’t a deduction from the deposit. Tenants are not required to accept your invitation for a pre-move out inspection, but you do have to offer it. 

Before your tenants moved in, you should have completed a move-in inspection, in which you documented the condition of the property before your tenants took possession. Use the same checklist, the same report, and the same photos as you go through the home to conduct your move-out inspection. 

If you find there is damage, document it, schedule your repairs, and then gather the invoices and receipts. You can charge the security deposit for the amount you paid. 

What’s the difference between property damage and general wear and tear? 

This is an excellent question, and probably the most confusing part of security deposit returns for San Mateo rental property owners. 

  • Normal wear and tear is any kind of general deterioration that can be expected when people are living in your property. It covers minor issues that occur naturally from a residency. You’ll find gently worn carpets that are likely more worn in high-traffic areas. There will be loose door handles and paint that’s faded and chipped. Glass may get scratched in the bathroom and there will be dirty grout in the tiles. Mold can even form there, and it’s simply an expected part of renting out a home. Those scuff marks on the wall and the floors from where furniture rested can be considered wear and tear. The small nail holes where pictures were hung are also wear and tear. 
  • Property damage is destruction that goes beyond the normal wear and tear. It’s the result of the home and its functions being improperly used. It can also be the result of neglect. Property damage negatively affects the usefulness and habitability of your property. It might be larger holes in walls, broken tiles in the floor or the shower, cracked windows, appliances that have been mistreated and now don’t work, or fixtures that are torn out from walls or missing. Lingering pet odors and stains can also be considered damage.

Cleaning a San Mateo Rental Property 

Clean the HouseYou can also use the tenant’s security deposit to clean the property after they move out and before a new tenant moves in. This isn’t a blank check, however. You can only clean to get the property to the standards that the home met before the tenant moved in. Again – your move-in inspection report will be critical. 

The cleaning cannot include normal wear and tear, either. You cannot charge to clean paint that is scuffed from furniture marks. 

If you’re going to use the security deposit to pay for cleaning charges, make sure that’s explained in the lease agreement. If the tenant doesn’t know this is happening, they can bring a claim against you in court. 

Most owners who stumble through the security deposit return are unsure of what they can lawfully withhold and what they must give back. 

The key is understanding what tenant damage looks like. The other key is documenting everything, starting from before the tenants even move in.

If you’d like some help sorting out how to handle your security deposit return, we’re here to assist. Please contact us at Sharevest Property Management.