California Deposits and Fees in 2026: What Landlords Can Legally Charge and Keep

Some of the trickiest money you will ever handle as a California landlord is the money you collect before a tenant moves in. Application fees, holding deposits, and security deposits feel routine, but the rules changed a lot between 2024 and 2026, and getting them wrong is one of the fastest ways to turn a smooth lease-up into a small claims headache. The good news: once you understand the rules and build a simple system around them, they protect you just as much as they protect your tenant.

Here is a plain-English guide to what you can charge, what you can keep, and how to document it so it holds up if anyone ever pushes back.

Three kinds of money, three different rulebooks

Before the details, it helps to know that California treats three common up-front payments very differently. Lumping them together, or labeling one as another, is where a lot of landlords get into trouble.

The Quick Version

• The application (screening) fee covers your cost to screen an applicant. It is capped and largely refundable.
• The holding deposit takes a unit off the market while you finish approving someone. You can keep only your actual losses if they back out.
• The security deposit protects you against damage and unpaid rent once the tenancy begins. It is now capped at one month's rent for most landlords.

Holding deposits: keep your actual losses, not a penalty

A holding deposit does one job. It reserves the unit and takes it off the market while you finish approving an applicant and getting the lease signed. It is not rent, and it does not give anyone the right to move in.

Two outcomes are easy. If you decide not to rent to the applicant, or if you cannot deliver the unit through no fault of theirs, they get the full deposit back. The harder situation is when an approved applicant simply backs out.

Here is the rule that surprises a lot of owners: even when the applicant is the one who walks away, California only lets you keep your actual, documented losses, not the full deposit as an automatic penalty. In practice that usually means the prorated rent for the days the unit actually sat off the market because of them, plus any real costs you incurred to re-advertise. You also have a duty to try to re-rent, so the clock on lost rent stops once the unit is filled or reasonably could have been.

Why does this matter so much? Under California contract law, a clause that forfeits money "without regard to the actual damage suffered" is treated as an unenforceable penalty, and residential agreements get extra scrutiny. This corner of the law is genuinely unsettled, and keeping a full holding deposit "just because the applicant flaked" is one of the easiest ways to end up defending a claim in small claims court.

How to protect yourself:

• Use a short written holding deposit agreement that says the money is a holding deposit, not rent, and explains exactly what happens if the applicant proceeds or backs out.
• If an approved applicant cancels, keep only your real, provable costs, and refund the rest with a short itemized note.
• Document your effort to re-rent. The sooner you fill the unit, the smaller your claim, and the stronger your position.

Security deposits: welcome to the one-month world of AB 12

This is the change that reshaped California leasing. Under AB 12, effective July 1, 2024, the maximum security deposit for most residential landlords is one month's rent, whether the unit is furnished or unfurnished. That single cap covers everything you might otherwise call a "pet deposit," "cleaning deposit," or "last month's rent." It all counts toward the one-month limit.

There is one narrow exception. If you are a natural person, or an LLC whose members are all natural people, and you own no more than two residential rental properties with no more than four units total, you may collect up to two months' rent. Even then, if your applicant is a service member, the limit drops back to one month.

A few rules that trip landlords up

• Nothing can be labeled "non-refundable." California does not recognize non-refundable deposits. Every dollar beyond the first month's rent and the screening fee is potentially refundable.
• You have 21 days. After a tenant moves out, you must return the deposit or send an itemized statement of deductions within 21 calendar days. If repairs are not finished in time, you can send a good-faith estimate within the 21 days and the final receipts within 14 days after the work is done.
• Bad-faith withholding is expensive. If a court finds you kept a deposit in bad faith, you can be liable for up to twice the deposit amount, on top of returning what you owe.

The newer wrinkle: AB 2801 and mandatory photos

Since April 1, 2025, a law called AB 2801 requires photo documentation to support security deposit deductions. When a tenant moves out, you must photograph the unit before you do any cleaning or repairs, and you must take before-and-after photos of any work you plan to charge for. For tenancies that begin on or after July 1, 2025, you also need move-in photos to establish a baseline. All of these photos have to go to the tenant along with the itemized statement, within that same 21-day window.

AB 2801 also reinforces that deductions must be limited to what is "reasonably necessary" to return the unit to its move-in condition, minus normal wear and tear. Blanket professional cleaning or carpet charges no longer fly unless the condition actually calls for them. The part that stings: if you fail to document in bad faith, you can lose the right to make the deduction at all, even when the damage was real. Photograph everything, every time.

Application and screening fees: small numbers, strict rules

You can charge a fee to cover the cost of screening an applicant, but California Civil Code section 1950.6 keeps a tight leash on it. The fee is limited to your actual out-of-pocket screening costs plus the reasonable value of your time, and it can never exceed a hard cap that adjusts every year for inflation. For 2026, that statewide cap is $65.86 per applicant. Because the number changes annually, confirm the current figure before each leasing season.

A few more requirements worth burning into your process:

• You cannot charge a screening fee when no unit is actually available or coming available within a reasonable time. Collecting fees on a unit that is not really open is what tenant attorneys call "application harvesting," and it draws scrutiny.
• You must give an itemized receipt on request, and you must refund any portion of the fee you did not actually use.
• Since January 1, 2025, AB 2493 requires you to pick one of two fair-processing methods: either review applications in the order received and approve the first qualified applicant (without charging anyone whose application you never considered), or refund the full fee to every applicant you did not select, within seven days of choosing a tenant or 30 days of the application, whichever comes first.

One more point that lives right next to screening: source of income is a protected class in California. You cannot refuse an applicant simply because they would pay with a Housing Choice voucher or similar assistance, and your income standards for a subsidized applicant should look at the tenant's share of the rent. Apply the same written criteria to everyone. Consistency is your best defense against a fair housing complaint.

The one habit that ties it all together

Notice the thread running through all three areas: the landlord carries the burden of proof.

Whether it is a holding deposit you kept, a repair you deducted, or a screening fee you charged, if it ever gets challenged, you are the one who has to show your work. That is not a reason to be nervous. It is a reason to build a simple, repeatable paper trail: written agreements, itemized statements, dated photos, and receipts. Landlords who document routinely almost never lose these disputes. Landlords who rely on memory almost always do.

Your 2026 deposit and fee checklist

• ✅ Use a written holding deposit agreement, and refund all but your actual losses if an approved applicant backs out.
• ✅ Cap security deposits at one month's rent (two only if you clearly qualify for the small-landlord exception, never for service members).
• ✅ Never label any deposit "non-refundable."
• ✅ Return the deposit or send an itemized statement within 21 days of move-out.
• ✅ Take move-in, move-out, and before-and-after repair photos, and send them with the itemized statement.
• ✅ Keep screening fees at or below the current cap ($65.86 for 2026), give receipts, refund unused amounts, and follow one AB 2493 processing method.
• ✅ Apply the same written screening criteria to every applicant, including voucher holders.

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California's deposit and fee rules keep shifting, and a single outdated clause can undo an otherwise solid lease-up. At Landlord Solutions San Diego, we represent landlords and property managers exclusively, and we help owners across San Diego County keep their agreements current, compliant, and enforceable. Call us at (619) 259-0720 or visit landlordsolutionssd.com.

Disclaimer: This article is general information for California landlords and property managers, current as of 2026. It is not legal advice and does not create an attorney-client relationship. California landlord-tenant law changes frequently, and several figures in this article, including the screening fee cap, adjust every year. Confirm the current rules, or speak with a qualified landlord-tenant attorney, before acting on any specific situation.