Effective July 1, 2024, Assembly Bill 12 (AB 12), authored by Assemblymember Matt Haney, will cap the amount landlords can charge for security deposits in California at one month’s rent. Yes, you read that correctly—one month’s rent will be the maximum many landlords will be able to seek as a security deposit. This legislation significantly impacts landlords in Newport Beach, Costa Mesa, and throughout California, and Lucas Real Estate is here to help you navigate these changes.

Existing Law:

Previously, California landlords could request up to two months’ rent as a security deposit for unfurnished residential properties and up to three months’ rent for furnished properties, in addition to any rent for the first month.

New Limits:

AB 12 now prohibits landlords from demanding or receiving a security deposit exceeding one month’s rent for both unfurnished and furnished properties, plus the first month’s rent.

Exceptions to the Rule:

The law outlines specific exemptions where landlords can charge up to two months’ rent as a security deposit:

• Small Landlords: Landlords who are natural persons or limited liability companies (LLCs) where all members are natural persons, and who own no more than two residential properties with a total of up to four rental units, are exempt from the one-month cap.

Exceptions to the Exceptions:

• Service members: This exception does not apply if the prospective tenant is a service member. In such cases, the security deposit remains capped at one month’s rent.

Official Legislative Counsel’s Digest:

AB 12, Haney. Tenancy: security deposits. Existing law regulates the terms and conditions of residential tenancies, and prohibits a landlord from demanding or receiving security for a rental agreement for residential property, however denominated, in an amount or value in excess of an amount equal to 2 months’ rent, in the case of unfurnished residential property, and an amount equal to 3 months’ rent, in the case of furnished residential property, in addition to any rent for the first month paid on or before initial occupancy. This bill would, beginning July 1, 2024, instead prohibit a landlord from demanding or receiving security for a rental agreement for residential property in an amount or value in excess of an amount equal to one month’s rent, regardless of whether the residential property is unfurnished or furnished, in addition to any rent for the first month paid on or before initial occupancy. The bill, unless the prospective tenant is a service member, as defined, would prohibit a landlord from demanding or receiving security for a rental agreement for residential property in an amount or value in excess of 2 months’ rent, in addition to any rent for the first month, if the landlord (1) is a natural person or a limited liability corporation in which all members are natural persons and (2) owns no more than 2 residential rental properties that collectively include no more than 4 dwelling units offered for rent.

Opinion: California’s Tenant-Friendly Policies and Their Impact on Landlords

As any landlord knows, a security deposit is often the only line of defense against non-payment of rent, r damage to the property or other financial loss. While tenants can be pursued in court for additional damages, this is often impractical due to the time and expense involved, and the slim chance of actual collection on any judgment.

AB 12 aligns California with its ongoing trend towards increasingly tenant-friendly rental practices, to the detriment of landlords and investors who provide much-needed housing throughout the state. Coupled with expanded statewide rent control for 2024, these bills make it less appealing to be a landlord in California. These laws will continue to exacerbate the high cost of housing by deterring potential investors and builders from developing new housing in the state while concurrently disincentivizing investments and renovations of existing properties. This trend drives investment elsewhere, a pattern that has been ongoing for many years, exacerbating the supply and demand imbalance and causing ever-increasing housing costs.

California’s burdensome housing policies provide elected officials with sound bites about “protecting renters,” but in reality, they further deepen the housing problem. By placing more hurdles and restrictions on landlords, these policies discourage new housing developments, ultimately worsening the state’s housing crisis and increasing the costs of housing and rent.

How Lucas Real Estate Can Help

Navigating these complex regulations can be challenging for landlords, especially those in high-demand areas like Newport Beach and Costa Mesa. At Lucas Real Estate, our extensive experience in real estate and legal matters positions us as experts in helping landlords and property owners understand and adapt to these new laws. We offer tailored advice and strategies to ensure you remain compliant while protecting your investments.

Whether you’re dealing with Proposition 19, handling estate planning, or managing tenant relations under new regulations like AB 12, our team is here to guide you through every step. Let us help you mitigate the impact of these changes and maintain the profitability of your rental properties.

For landlords in Newport Beach and Costa Mesa facing these new challenges, Lucas Real Estate offers the expertise and support you need. Contact us today to learn more about how we can assist you.

– Devin Lucas

Devin R. Lucas is a REALTOR®, Real Estate Attorney, and real estate Broker, specializing in Newport Beach, Costa Mesa, and Orange County coastal communities. He serves individuals, trustees, and investors in residential real estate transactions.

Lucas Real Estate – led by Attorney Devin Lucas and CPA Courtney Lucas – are experts in residential real estate sales in Newport Beach, Costa Mesa, and coastal Orange County. Our services include tax considerations, Trustee representation, family sales, and navigating California’s Proposition 19.

Questions about a potential open-market home sale or purchase? Contact us anytime via phone at (949-478-1623) or email at (info@lucas-real-estate.com).

Lucas Real Estate

REALTORS® and Real Estate Legal & Tax Experts

Luxury Real Estate with Legal Guidance and Tax Strategy

BRE No. 01912302
Phone: 949.478.1623
2901 West Coast Highway, Suite 200
Newport Beach, CA 92663-4023

Photo by Andre Taissin 

Sources: https://legiscan.com/CA/text/AB12/id/2771770

Lucas Real Estate is a unique full-service residential real estate brokerage, offering comprehensive real estate services, along with legal and tax planning. Based in Newport Beach, California, Devin Lucas is a licensed California Real Estate Attorney, Real Estate Broker, and REALTOR®. Courtney Lucas is a California licensed CPA and REALTOR®.