Updated 08/12/25
Governor Gavin Newsom recently signed AB 12 into law, a significant legislative move authored by Democrat Assemblyman Matt Haney. This new law brings noteworthy changes to the regulations governing security deposits for residential rentals in California, aiming to make housing more affordable and accessible for tenants across the state. The key provisions of AB 12 are set to take effect on July 1, 2024, and will significantly alter the financial landscape for both landlords and tenants. In addition, 2025 amendments under AB 2801 add photo-documentation rules around security deposit deductions that further shape how deposits are collected, used, and returned.
Key Changes Introduced by AB 12
Reduction in Security Deposit Limits
One of the most impactful changes under AB 12 is the reduction in the amount landlords can demand as a security deposit:
Previous Regulations: Before AB 12, landlords were permitted to collect up to two months’ rent for an unfurnished unit and up to three months’ rent for a furnished unit as a security deposit. This meant that tenants often had to save a substantial amount of money before moving into a new rental property, which could be a significant financial burden.
New Regulations: Starting from July 1, 2024, landlords will be limited to demanding a security deposit equivalent to only one month’s rent for any residential rental unit. This change is expected to lower the upfront costs for tenants, making it easier for them to secure housing. Importantly, the one-month cap applies to deposits demanded or received on or after July 1, 2024; lawfully collected higher deposits taken before that date generally do not have to be reduced mid-tenancy. California law also clarifies that “security,” however labeled, includes payments like “last month’s rent,” pet deposits, key deposits, move-in fees, and cleaning deposits—renaming the charge won’t avoid the cap (Civ. Code § 1950.5).
Collection of First Month’s Rent
In Addition to the Security Deposit: Landlords are still allowed to collect the first month’s rent from a prospective tenant before the tenancy begins. This means that while the security deposit has been capped, tenants will still need to pay the first month’s rent upfront, which is a common practice in rental agreements. Note that a separate “last month’s rent” prepayment is generally treated as part of the security deposit and counts toward the one-month cap.
Advance Rent Prepayment (Unchanged Rule): AB 12 does not eliminate an existing option in California law that is distinct from security deposits. For leases of six months or longer, landlords may accept an advance rent prepayment of not less than six months’ rent; this is not considered a security deposit (Civ. Code § 1950.5(c)(2)). This is a narrow tool and should not be confused with collecting “last month’s rent.”
Exceptions Under AB 12
While the general rule under AB 12 limits security deposits to one month’s rent, there are specific exceptions that allow certain landlords to demand higher deposits under certain conditions:
- Criteria for Exceptions: Landlords who meet the following criteria can request a security deposit equivalent to up to two months’ rent:
- The landlord must be a natural person or a limited liability company (LLC) where all members are natural persons. For eligibility, AB 12 explicitly recognizes certain family trusts as qualifying “natural person” ownership (e.g., a revocable living trust where the settlors and beneficiaries are related).
- The landlord must own no more than two residential rental properties, which collectively comprise no more than four dwelling units offered for rent.
These criteria are designed to provide some flexibility to small-scale landlords, who may need additional security due to the limited number of properties they manage. The exception does not apply to corporate or institutional ownership structures.
- Service Member Protection: An important exception within the exceptions is the special consideration for service members. Even if a landlord meets the above criteria, they cannot demand more than one month’s rent as a security deposit if the prospective tenant is a service member. The law also bars refusing to rent to a service member because of this deposit limit, reinforcing protections for those who often face unique financial and relocation challenges.
Implications of AB 12
For Tenants
Increased Affordability: The reduction in security deposit limits is a significant step towards making housing more affordable for tenants. With the cap set at one month’s rent, tenants will find it easier to move into new rental properties without the heavy burden of saving for a large security deposit.
Greater Access to Housing: Lower upfront costs could potentially increase the pool of available renters, allowing more people to access housing opportunities that were previously out of reach due to financial constraints. Tenants should also be aware of 2025 photo-documentation rules (AB 2801): landlords must photograph the unit when deductions will be taken and, for new tenancies beginning July 1, 2025 or later, photograph the unit at move-in. These photos must be provided with the itemized deposit disposition within 21 days after move-out, improving transparency and reducing disputes. In some cities (for example, units covered by Los Angeles’s Rent Stabilization Ordinance), landlords must also pay interest on security deposits annually; LA’s rate for calendar year 2025 is 4.32%.
For Landlords
- Financial Adjustments: Landlords will need to adjust to the new regulations by reassessing their financial strategies. The reduced security deposit limit means that they will have less financial security to cover potential damages or unpaid rent, which could impact how they manage their properties. Screening, clear move-in condition reports, and routine maintenance planning become even more important.
- Compliance and Documentation in 2025: To preserve the right to deduct from a deposit, landlords should (1) offer the initial inspection before move-out as required by existing law, (2) take and retain photographs when possession is returned—before repairs/cleaning and again after work is completed—and provide those photos with the 21-day itemized statement (effective April 1, 2025), and (3) for new tenancies starting on or after July 1, 2025, also photograph the unit at move-in and share/retain those photos. Following these steps helps substantiate deductions and avoid claims.
- Small-Scale Landlord Considerations: The exceptions provided for small-scale landlords offer some relief, allowing them to demand higher deposits under certain conditions. However, landlords will need to ensure they meet the specific criteria to qualify for these exceptions, including qualifying ownership (natural person, all-natural-person LLC, or eligible family trust) and the two-property/four-unit limit. The exception does not apply when the applicant is a covered service member.
Overall Market Impact
Balancing Interests: AB 12 aims to balance the interests of tenants and landlords by providing financial relief to renters while still offering some flexibility to small-scale property owners. The law reflects a broader effort to address housing affordability issues in California, a state known for its high cost of living and housing shortages. Layered with AB 2801’s photo rules and local requirements such as deposit interest in rent-controlled jurisdictions, California continues to standardize deposit practices, reduce conflicts, and increase transparency for both sides.
Conclusion
AB 12 represents a significant shift in California’s approach to rental housing regulations. By capping security deposits at one month’s rent and providing specific exceptions for small-scale landlords, the law seeks to make housing more accessible and affordable for tenants while still considering the needs of property owners. As the new regulations took effect on July 1, 2024—and as 2025’s AB 2801 photo-documentation requirements phase in—tenants and landlords alike will need to familiarize themselves with the changes and adjust their financial planning and day-to-day processes accordingly. This legislative move underscores California’s commitment to addressing the housing crisis and ensuring that more residents can find and maintain affordable housing.
