Can A Security Deposit Be Used for Unpaid Rent?

One of the most common areas of friction between a landlord and tenant is the repayment of the security deposit after a tenant has moved out.  Landlords and tenants often squabble over when and under what circumstances a landlord is entitled to deduct from a tenant’s security deposit.Security deposit
In California, a landlord of both residential and commercial property can deduct for unpaid rent from the tenant’s security deposit.

Residential Lease Security Deposits

For a residential lease, a landlord can withhold from the security deposit only those amounts that are reasonably necessary for certain purposes. The security deposit cannot be used for repairing defects that existed in the unit before you moved in, for conditions caused by normal wear and tear during your tenancy or previous tenancies, or for cleaning a rental unit that is as clean as it was when the tenant moved in. Civil Code Sections 1950.5(b), (e).  A rental agreement or lease can never state that a security deposit is “nonrefundable.”
A landlord has 21 calendar days to do either of the following:
  • Send you a full refund of your security deposit, or
  • Mail or personally deliver to you an itemized statement that lists the amounts of any deductions from your security deposit and the reasons for the deductions, together with a refund of any amounts not deducted.
Commercial Lease Security Deposits
Under Cal. Civil Code 1950.7(c), a landlord in a commercial lease can also retain amounts of a security deposit which are “reasonably necessary to remedy tenant defaults in the payment of rent, to repair damages to the premises caused by the tenant, or to clean the premises upon termination of the tenancy, if the payment or deposit is made for any or all of those specific purposes.”
In order to make it clear why the landlord has collected the security deposit, a landlord should add language to their lease agreements which specifically states that the security deposit can be used for unpaid rent.
Here is some sample language describing how a Security Deposit may be used in a commercial lease in California:
Security Deposit
The Security Deposit shall be held by Landlord without liability for interest and as security for the performance by Tenant of Tenant’s covenants and obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of rental or a measure of Landlord’s damages in case of default by Tenant. Unless otherwise provided by mandatory non-waivable law or regulation, Landlord may commingle the Security Deposit with Landlord’ s other funds. Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrearages of rent or to satisfy any other covenant or obligation of Tenant hereunder. Following any such application of the Security Deposit, Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. If Tenant is not in default at the termination of this Lease, the balance of the Security Deposit remaining after any such application shall be returned by Landlord to Tenant. If Landlord transfers its interest in the Premises during the term of this Lease, Landlord may assign the Security Deposit to the transferee and thereafter shall have no further liability for the return of such Security Deposit.

Determining whether a landlord is entitled to deduct from a security deposit can be tricky.   If you are a landlord, it is best to consult with an attorney prior to making a decision whether to retain a portion of a tenant’s security deposit for unpaid rent, damage beyond ordinary wear and tear, or for other reasons.  If you are a tenant, be sure you know the lawful reasons a landlord can withhold a portion of your security deposit so that there are no misunderstandings at the time of move-out.

John Corcoran is an Associate with Plastiras & Terrizzi law firm in San Rafael, California (Marin County).  He advises clients on real estate matters, small business issues, estate planning, and general civil litigation.  He may be reached at [email protected] or (415) 472-8100 x211.