AB 12 Explained: California's New Security Deposit Law and What It Means for Landlords

California Assembly Bill 12 (AB 12), signed into law in October 2023 and effective July 1, 2024, dramatically changed how much landlords can collect as a security deposit. If you're renting residential property in California — including anywhere in the Inland Empire — here's exactly what you need to know.

What AB 12 Changed

Before AB 12: Landlords could charge up to two months' rent as a security deposit for unfurnished units and three months' for furnished units.

After AB 12 (effective July 1, 2024): The maximum security deposit is one month's rent for most residential units, regardless of whether the unit is furnished or unfurnished.

Who Is Exempt?

AB 12 includes a limited exemption for small landlords:

• The landlord is a natural person (not a corporation, LLC, or other entity)
• The landlord owns no more than two residential rental properties
• Combined, those properties have no more than four dwelling units

Qualifying small landlords may still charge up to two months' rent as a deposit. However, this exemption is strictly construed. If you hold your property in an LLC or other entity, you are likely not exempt even if you personally own only two properties.

Impact on Inland Empire Landlords

For most Inland Empire landlords, AB 12 means:

• New leases signed after July 1, 2024 must comply with the one-month limit.
• Existing leases that predate July 1, 2024 are not retroactively affected — you are not required to refund deposits already collected under prior law.
• Renewals and new tenants must comply, even if the property was previously rented under the old rules.

Deposit Handling Requirements (Unchanged)

The rules for handling and returning deposits remain the same under AB 12:

• Deposits must be returned within 21 days of move-out
• An itemized statement of deductions must accompany any withholding
• Permissible deductions: unpaid rent, cleaning beyond normal wear and tear, tenant-caused damage
• Deposits cannot be used for normal wear and tear
• Failure to return timely can result in penalties of up to twice the deposit amount

What This Means for Your Screening Process

With a reduced deposit cap, the importance of thorough tenant screening increases. A lower deposit means less financial cushion if a tenant causes damage. This makes income verification, credit checks, and rental history verification even more important for protecting your investment.

Practical Steps for Compliance

• Update your lease template to reflect the new one-month limit
• Review your management agreement if you use a property manager — ensure they are compliant
• Document property condition thoroughly with photos before move-in
• Consider whether your entity structure affects your exemption eligibility

Magnolia Property Management's lease templates are updated to reflect AB 12 compliance. If you have questions about how this law affects your specific properties, contact us at 951-961-6422.