The below is transcribed from The Accidental Landlord Podcast.
All right, welcome to another episode of the Accident Landlord podcast. I'm your host, Peter McKenzie. Today is going to be short and sweet. We're going to be talking about a new law. We wanted to call attention to this particular law because it is going to basically affect all landlords. There are a couple exceptions, but for the most part, everybody's going to have to take a bite of this sandwich. And it's not really in the best interest of landlords.
It is going to affect you. So whether you have a professional management company managing your property or you manage a property on your own, all the same, you need to know about this new law. And the new law that we're talking about is assembly bill 12. This law was passed a few months ago and it takes effect on July 1st, 2024. And essentially here is the gist of it. No longer, they're changing how much you can charge a tenant for a security deposit.
You can note right now, currently you can charge two months for an unfurnished rental and three months for a furnished rental. They're taking that away. They think, I think the rationale behind this is they think that the high cost of security deposits is preventing some people from finding housing. And obviously housing is a politically hot button issue out there right now. So the new law in its current shape is like I said, taking effect on January 1st, you're not allowed to ask for over one month security deposit for a tenant who's going to move into your property. So if, you know, if you have a tenant who, or not a tenant, but an applicant who wants to live in one of your properties, and you use the security deposit as a way to offset some of the risk. Maybe there's risk associated with some income issues or some previous rental references or some credit issues, some collection issues. Landlords in the past would sometimes charge a higher security deposit to offset that risk. That is going away because of this new law. And the problem with that is it's probably, and all of this is unknown because it hasn't actually gone into effect and we have to wait and see what actually happens, but probably a landlord that's looking at an application that's like on the bubble, questionable whether they're qualified or not, will probably err on the side of not renting to a person who has some issues in their background from their application that they screened because they don't have the ability to charge more security deposit, which is a benefit to the landlord because let's say you do make a decision to rent to someone that's marginally qualified, but you charge them two months security deposit, you have a little leeway. If they stop paying the rent, you can process an eviction. And by the time you get them out, potentially you have enough still funds in the security deposit to take and make sure that you're made whole on rent. That's one scenario. The other scenario is, if you make it harder for landlords, they're gonna be less tolerant to taking on risks that they don't wanna take on. And this is really like a knee -jerk kinda law. They're trying to make it easier for people to get properties, but, and this is just my personal opinion, I think they're gonna actually have the opposite effect. I think landlords are gonna tighten up their requirements for being approved for applications. And this is an area that the law hasn't really got involved in and legislated. Obviously there's things like fair housing, protected classes... that's definitely not what we're talking about. We're talking about data that you analyze as a landlord, like does this person have a job? Can they document their income? What have previous landlords said about them? What's their credit score? Do they have money in collections? Are there bankruptcies? Objective data that you can look at and make a decision on. Those are the things that landlords were using to make decisions. Now if you take away something that they use to offset the cost or offset the risk, it's gonna make it harder. In my opinion, they're gonna tighten up and it's gonna make it harder for tenants to get properties. That's negative. That is like counterproductive to what I think they were trying to accomplish when they passed the law.
