California's security deposit cap has been in effect long enough now that some landlords have stopped thinking about it day-to-day, which is exactly when a compliance mistake tends to slip through. AB 12 fundamentally changed how much you can collect at move-in, but it didn't stand still after 2024. Related laws have since layered on new documentation requirements that make the deposit process stricter, not looser, even as the dollar amount you can collect has gone down.
Here's what AB 12 actually requires, who still qualifies for an exception, and what else has changed around security deposits that Merced landlords need to have in place for 2026.
Key Takeaways
- Since July 1, 2024, California caps security deposits at one month's rent for most residential tenancies, regardless of whether the unit is furnished.
- A narrow, small landlord exception still allows up to two months' rent, but it applies only to natural persons or all-natural-person LLCs that own two or fewer properties totaling four or fewer units.
- Active-duty service member tenants are guaranteed the one-month cap regardless of landlord size, with no exceptions available.
- Pet deposits are now included within the one-month cap rather than charged separately, though monthly pet rent is still allowed.
- A separate law, AB 2801, now requires photo documentation at move-in, move-out, and after any repair or cleaning tied to a deposit deduction, and skipping it can cost you the right to make any deduction at all.
The One-Month Cap: What AB 12 Actually Requires
Assembly Bill 12 took effect on July 1, 2024, capping security deposits at one month's rent for any residential lease entered into, renewed, or extended on or after that date. Before AB 12, landlords could charge up to two months' rent for an unfurnished unit and three months' rent for a furnished unit. That distinction is gone entirely: the one-month cap now applies whether the unit is furnished or unfurnished. Landlords can still collect first month's rent in addition to the deposit, so the total move-in cost remains two months' worth of payments, just split differently than before.
The Small Landlord Exception (Still Very Narrow)
AB 12 does carve out an exception for certain small landlords. Property owners who are natural persons or LLCs in which every member is a natural person, and who own no more than two residential rental properties totaling no more than four dwelling units, may still collect up to two months' rent. An owner with a duplex and a triplex, five units total, does not qualify, even though that's a modest portfolio by most standards.
There's an important carve-out to the carve-out: active-duty service member tenants are guaranteed the one-month cap regardless of the landlord's size or eligibility for the small landlord exception. If you qualify as a small landlord but your applicant is an active service member, the one-month cap still applies.
Pet Deposits Are Not Separate Anymore
AB 12 also closed a common workaround. A pet deposit is now considered part of the overall security deposit and must fit within the one-month cap, rather than being charged as an additional amount on top of it. You can still charge monthly pet rent as a recurring fee, which is treated differently than a deposit, but a separate lump-sum pet deposit stacked on top of a full month's security deposit is no longer allowed.
What AB 12 Didn't Change: The Rules Around Returning Deposits
It's worth being clear about what AB 12 left untouched. The 21-calendar-day deadline to return a deposit, the itemized statement requirement for any deductions, and the documentation requirement for deductions over a set threshold all remain in place under Civil Code 1950.5, exactly as they were before AB 12. A landlord who retains a deposit in bad faith can still be liable for up to twice the deposit amount in statutory damages, plus the tenant's attorney's fees and costs if the dispute ends up in court.
The New Layer: AB 2801's Photo Documentation Requirements
A separate law, AB 2801, added real teeth to the documentation side of the process. Landlords must now photograph the unit's condition before or at move-in, again at move-out before any cleaning or repairs begin, and once more after any repair or cleaning work that will be deducted from the deposit. These before-and-after photos, along with a written explanation of the cost of each deduction, must be provided to the tenant within the standard 21-day window.
The consequences for skipping this are serious. Failing to provide the required photo documentation in good faith can cost a landlord the right to make any deduction from the deposit at all, regardless of how legitimate the underlying repair or cleaning charge actually was. With deposits already capped at one month's rent, losing the ability to deduct for real damage on top of that cap is a genuinely expensive mistake.
Benefits and Challenges for Landlords
There's a real upside buried in all this new documentation. Landlords who consistently photograph move-in and move-out conditions and keep before-and-after photos for every repair are in a dramatically stronger position if a deposit dispute ever reaches small claims court. The habit that AB 2801 forces is genuinely good practice, not just a compliance burden.
The honest challenge is that a smaller deposit provides less financial cushion, especially for higher-rent units, where a single month's deposit may not cover the cost of significant damage. When damage exceeds the deposit, landlords are left to pursue the difference separately, creating a real practical gap in what used to be a larger financial buffer.
How to Stay Compliant Heading Into the Rest of 2026
- Confirm that your current lease templates reflect the one-month cap, and don't assume that an old lease renewal automatically carries over an outdated deposit amount.
- If you're relying on the small landlord exception, verify that your total property and unit counts still qualify, especially after any recent acquisitions.
- Build a simple, repeatable photo documentation habit for every move-in, move-out, and deposit-related repair, and keep the photos organized by property and date.
- Never charge a separate pet deposit on top of a full one-month security deposit; instead, use monthly pet rent if you want ongoing compensation for pet-related wear.
- Treat the 21-day return deadline and itemization requirement as non-negotiable, since those rules didn't change and the penalties for missing them haven't softened.
Frequently Asked Questions
Does the one-month deposit cap apply to leases signed before July 1, 2024?
AB 12 applies to leases entered into, renewed, or extended on or after July 1, 2024. A lease that hasn't been renewed or extended since that date may still operate under the prior deposit terms until it is renewed or extended.
Can I still charge extra for a furnished rental?
Not as a security deposit. AB 12 eliminated the old distinction that allowed up to three months' rent for furnished units, so the same one-month cap now applies regardless of furnishing.
I own three small rental properties. Do I qualify for the small landlord exception?
Only if you own two or fewer properties totaling four or fewer units. Three properties would generally disqualify you from the exception unless your specific unit count and ownership structure still fit within those limits.
What happens if I forget to take move-out photos before starting repairs?
You risk losing your ability to deduct anything from the security deposit for that repair or cleaning, even if the damage was real and the cost was reasonable. AB 2801 makes the photo documentation a condition of making a valid deduction.
Can I still require renters' insurance to offset the smaller deposit?
Yes. Requiring renters' insurance doesn't violate the deposit cap and can help offset some of the reduced financial cushion, since it covers certain tenant-caused losses separately from your security deposit.
Stay Ahead of Deposit Compliance, Not Behind It
Security deposit rules in California keep adding layers, and the documentation requirements now matter as much as the dollar cap itself. Rental Zebra has managed Merced-area rentals for over 15 years and builds these compliance steps into every tenancy from move-in forward. If you want a second look at your current lease terms and deposit process, reach out through our property management services page for a free consultation.
