The California bill AB 12 aims to:
1. Limit the security deposit to one month's rent for both furnished and unfurnished properties, starting July 1, 2024.
2. Allow small property owners who own no more than 2 residential properties with up to 4 dwelling units to demand up to two months' rent as security.
3. Make exceptions for service members, limiting the security deposit to one month's rent unless the tenant has a history of poor credit or causing damage.
4. Set detailed procedures for property inspections before a tenant vacates, giving the tenant an opportunity to remedy issues to avoid deductions from the security.
This could affect your property management business by potentially reducing financial cushions for issues like damages but may make properties more appealing to potential tenants.
Now what are you going to do? Here are some ideas...
Adapting to new regulations while maintaining your current tenant qualifications can be challenging but is doable. Here are some strategies you could consider:
1. **Non-refundable Fees**: While the security deposit is restricted, you might be able to charge non-refundable fees for specific services like cleaning or administrative processing, provided they are clearly outlined in the lease agreement.
2. **Pet Rent**: Instead of a pet deposit, some landlords charge "pet rent," which is a monthly fee added to the rent specifically for having a pet. This could compensate for the potential risk and wear and tear pets might cause.
3. **Renters Insurance**: You could require tenants to have renters insurance that includes liability coverage. This can offer you an additional layer of protection against property damage.
4. **Co-Signers or Guarantors**: For tenants who may be riskier due to past credit issues, you could require a co-signer or guarantor who has stronger financial credentials.
5. **Tiered Pricing**: Offer rental rates at different price points depending on the level of risk a tenant may pose. For example, if you often rent to people with poor credit, consider slightly higher rent for these riskier tenants to offset potential losses.
6. **Regular Inspections**: Although the law outlines inspection procedures at the end of a tenancy, you might consider more frequent inspections during the tenancy (in accordance with the law) to catch and address issues early.
7. **Detailed Lease Agreements**: Make your lease agreements as detailed as possible, specifying tenant responsibilities for property upkeep. This will give you more legal recourse in case of damage or negligence.
8. **Advance Payments**: The bill does mention that an advance payment of not less than six months' rent is not prohibited if the lease term is six months or longer. Depending on the tenant's willingness and financial situation, this could be an option.
Given your extensive experience in property management and your analytical skills, some of these strategies may resonate more with your current practices. Always consult with legal counsel when making changes to lease agreements or business practices to ensure you're in compliance with current laws.
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