Since July 1, 2024, a California landlord can no longer collect more than one month’s rent as a security deposit on a new lease — furnished or unfurnished. That single sentence rewrote the risk math for every San Diego rental owner who used to lean on a fat deposit to cover damage, unpaid rent, and turnover. AB 12 is now the law, the cushion is thinner, and the owners getting burned are the ones who never adjusted their screening, their lease, or their reserves. This guide explains exactly what AB 12 changed, who still qualifies for an exception, and how to protect your property when the deposit can no longer do it for you.
What is AB 12 and what did it change?
AB 12 amended California Civil Code Section 1950.5, the statute that governs residential security deposits. The core change is simple and strict: for any new tenancy, the maximum security deposit a landlord may demand or receive is one month’s rent, and that cap applies whether the unit is furnished or unfurnished.
Before AB 12, California allowed up to two months’ rent for an unfurnished unit and up to three months for a furnished one. For a San Diego owner renting a furnished beach condo at $4,000 a month, that is the difference between a $12,000 cushion and a $4,000 one. The protection you used to bake into the deposit now has to come from somewhere else.
When did the AB 12 one-month cap take effect?
The cap took effect July 1, 2024, and it applies only to new security deposits obtained after that date. Deposits that were lawfully collected before July 1, 2024 can remain as they are — you are not required to refund the difference on an existing, grandfathered tenancy. But the moment you sign a new lease or take a new deposit, the one-month ceiling applies.
In practical terms: every new San Diego tenancy you start today is a one-month-deposit tenancy. The old playbook is retired.
Is there a small-landlord exception to AB 12?
Yes — and this is the detail that trips owners up most. A limited exception lets certain small landlords collect up to two months’ rent. To qualify, you must meet both conditions:
- You are a natural person, or a limited liability company in which all members are natural persons (no corporate or institutional owners in the LLC).
- You own no more than two residential rental properties that collectively contain no more than four dwelling units offered for rent.
If you own three rental houses, you do not qualify — even if the total unit count is low. If your LLC has a corporate member, you do not qualify. Cross either line and you are back to the one-month cap. Because the test is strict and easy to misread, this is precisely the kind of compliance question worth confirming before you write it into a lease.
Does the exception apply to military tenants?
No. The maximum security deposit for an active-duty service member is one month’s rent, with no exception — the small-landlord two-month allowance does not apply to them. San Diego is a heavy military market, and a landlord near the bases who assumes the small-landlord exception covers everyone can end up collecting an unlawful deposit from a service member. When in doubt with a military applicant, the answer is one month.
How do you protect a property when the deposit is capped?
The deposit was never really your protection — it was a convenient proxy for it. AB 12 just forced the issue. The owners who stay profitable under the one-month cap shift their protection upstream, into screening and the lease, instead of relying on a pile of cash after the fact.
Tighten tenant screening
A smaller deposit makes who you place far more important than how much you hold. That means a rigorous, consistent screening process: credit checks, verifiable income (typically a multiple of rent), employment and rental history verification, and reference checks — applied evenly to every applicant to stay compliant with fair-housing rules. The cheapest way to avoid eating a loss the deposit can no longer cover is to not place a high-risk tenant in the first place.
Use the lease, not the deposit
Your lease should clearly define rent, late fees, the tenant’s maintenance responsibilities, and the documented move-in condition of the unit. A thorough, photo-documented move-in inspection is now one of your most valuable assets: when you can prove the condition the tenant received, you can defend legitimate deductions from the one month you do hold.
Build a real reserve
If the deposit no longer absorbs a bad turnover, your operating reserve has to. Owners who used to self-insure through a two- or three-month deposit need to fund that protection deliberately now, as cash set aside, rather than assuming the tenant’s money will be there to cover it.
Document everything, every time
Move-in and move-out inspections, dated photos, written notices, and an itemized deposit accounting returned within California’s required timeline. Clean documentation is what turns a disputed deposit into a defensible one — and what keeps a frustrated tenant from turning a normal deduction into a small-claims headache.
How does AB 12 change move-out and turnover?
The one-month cap does not just shrink your cushion at move-in — it raises the stakes at move-out. With less deposit to draw against, a single bad turnover can wipe out the entire deposit and then some, leaving you to absorb the rest. That makes the move-out process, and the itemization that follows it, more financially consequential than it used to be.
Three habits protect you. First, conduct a documented move-out inspection and compare it directly against your dated move-in record, so every deduction is tied to a before-and-after you can show. Second, return the deposit and a written, itemized statement of deductions within California’s required timeline — late or vague accounting is how owners lose otherwise-valid deductions in a dispute. Third, distinguish ordinary wear and tear (which you cannot charge for) from actual damage (which you can), because under a thinner deposit the temptation to over-deduct grows, and over-deducting is exactly what turns a routine move-out into a small-claims claim.
The owners who handle this cleanly treat the move-out as a process with a paper trail, not a judgment call made on the last day. That discipline is also where a property manager pays for itself: standardized inspections, compliant timelines, and defensible itemizations on every unit, every time.
What happens if you collect too much?
Collecting a deposit above the AB 12 cap is not a gray area. An over-collected deposit exposes you to having to return the excess and to statutory penalties under California’s security-deposit law, plus the reputational and legal cost of a tenant dispute. For an owner juggling multiple San Diego units, the safest posture is a single standardized deposit policy that defaults to one month and only deviates when you have confirmed, in writing, that a specific exception applies.
Frequently asked questions about AB 12
What is the maximum security deposit in California now?
For new tenancies on or after July 1, 2024, the maximum is one month’s rent, whether the unit is furnished or unfurnished. Certain small landlords may collect up to two months, and active-duty service members are always capped at one month.
Does AB 12 apply to deposits I collected before July 1, 2024?
No. Deposits lawfully collected before that date are grandfathered and can remain unchanged. The one-month cap applies to new deposits obtained after July 1, 2024.
Who qualifies for the small-landlord two-month exception?
A natural person, or an LLC whose members are all natural persons, who owns no more than two residential rental properties totaling no more than four units for rent. Both conditions must be met, and the exception never applies to active-duty service members.
Can I charge a separate pet deposit or extra fees to get around the cap?
The one-month (or two-month, if you qualify) limit applies to security collected for the tenancy. Owners should not try to relabel additional security to exceed the cap; structuring around the law invites exactly the disputes and penalties AB 12 created. Confirm any pet or additional-fee arrangement against current law before relying on it.
How does AB 12 change how I should screen tenants?
With less deposit cushion, screening becomes your primary protection. Tighten and standardize credit, income, employment, and rental-history checks, applied equally to all applicants, so you are reducing risk before move-in rather than chasing it afterward.
Don’t let a thinner deposit become a bigger loss
AB 12 did not make San Diego rentals less profitable — it made sloppy operations more expensive. The one-month cap rewards owners who screen well, write a tight lease, document the unit, and hold a real reserve, and it punishes owners who were quietly relying on a big deposit to bail them out of weak tenant selection.
If you are not sure your screening, lease, and deposit policy are AB 12-compliant — or you want a second set of eyes before your next placement — request a free rental analysis from Three Palms Rental Management. We will review how your property is protected under the one-month cap and tighten the parts of your process that the deposit used to cover.
