When Does a Commercial Landlord Have to Return the Security Deposit in California?

Last updated: November 2026. Reviewed by Pavel Kolmogorov, California business litigation attorney (State Bar No. 321018).

A commercial landlord in California must return what is left of a security deposit no later than 30 days after it receives possession of the premises. A shorter, two-week deadline applies to part of a large deposit when the only claim is unpaid rent. The landlord may keep only amounts reasonably necessary to cure rent defaults, repair damage the tenant caused, or clean the space. (Civ. Code, § 1950.7, subd. (c).) The lease can change some of these rules. Kolmogorov Law, P.C. handles deposit disputes over commercial property.

Call (909) 235-6116 or contact us online to discuss a commercial deposit that has not been returned, or a deduction your former tenant disputes.

Which deposits section 1950.7 covers

Section 1950.7 governs any payment or deposit of money whose primary function is to secure the performance of a rental agreement for property other than residential property. A payment made to secure the signing of a lease is outside it. (Civ. Code, § 1950.7, subd. (a).) Residential deposits fall under a different statute, which this page does not address.

The landlord holds the deposit for the tenant. The tenant's claim to it comes ahead of the landlord's creditors, except a trustee in bankruptcy. (Civ. Code, § 1950.7, subd. (b).)

Three things are absent from the section. It sets no limit on the size of a commercial deposit. It does not require interest. It does not require an itemized statement of deductions. A lease may add any of these.

What the landlord may deduct

The landlord may claim only the amounts reasonably necessary for three purposes. They are remedying the tenant's defaults in the payment of rent, repairing damage to the premises caused by the tenant, and cleaning the premises when the tenancy ends. Each purpose is available only if the deposit was made for it. (Civ. Code, § 1950.7, subd. (c).)

Future rent is treated differently from past rent. A Court of Appeal held that a landlord who terminated the lease after the tenant's default could apply the deposit to rent that had accrued by the return deadline. It could not hold the deposit against damages for rent coming due later. (250 L.L.C. v. PhotoPoint Corp. (2005) 131 Cal.App.4th 703, 708-709.)

Charges the lease treats as rent, such as year-end operating expense balances, raise their own questions. Our page on CAM charge disputes covers them.

The return deadlines

The clock starts on the date the landlord receives possession of the premises. The deadline then depends on what the landlord claims.

Unpaid rent only, and the deposit is no more than one month's rent plus an amount clearly described as last month's rent. The balance is due at a time the parties agree on, but no later than 30 days after possession.
Unpaid rent only, and the deposit is larger than that. The part of the balance that exceeds one month's rent is due no later than two weeks after possession. The rest must be returned or accounted for within 30 days.
Repairs or cleaning are part of the claim. The balance is due at an agreed time, but no later than 30 days after possession.

(Civ. Code, § 1950.7, subd. (c)(1)-(3).)

Because everything runs from possession, a tenant should return the keys in a way that leaves a dated record.

Lease terms that change the default

The same decision held that a commercial tenant may waive the protections of section 1950.7. Parties may agree that a deposit can be held and applied against future rent damages. The lease in that case did not go that far. Its 45-day return clause lengthened the deadline and did nothing more. (250 L.L.C., supra, 131 Cal.App.4th 703.)

Read the deposit article of the lease before sending a demand. Look for a longer return period, a right to apply the deposit to any default, a duty to replenish it, and any condition tied to a final expense reconciliation. The decision applied an earlier version of the statute's deadlines, so compare the lease with the current text.

If the building is sold

When the landlord's interest ends, by sale or otherwise, the landlord must do one of two things within a reasonable time. It may transfer the deposit, less lawful deductions, to its successor. It must then notify the tenant, by personal delivery or certified mail, of the transfer, any claims made against the deposit, and the new owner's name and address. If the notice is delivered in person, the tenant acknowledges receipt by signing the landlord's copy. Or it may return the balance to the tenant. Either step relieves the former landlord of further liability for the deposit. A successor that receives the deposit has all the rights and obligations of the landlord who held it. (Civ. Code, § 1950.7, subds. (d), (e).)

If you are the tenant

Send a written demand that states the date possession was returned, the deadline that applied, and the amount due. Ask for the invoices behind each deduction.

Bad faith retention may expose the landlord, or a successor, to damages of up to $200 in addition to actual damages. (Civ. Code, § 1950.7, subd. (f).) The statutory sum is small. The claim that matters is the deposit itself, with attorney fees if the lease has a fee clause. The amount in dispute decides which court hears the case.

If you are the landlord

Photograph the space at move-out and keep the repair and cleaning invoices. Send a written accounting inside the deadline. Deduct only what the lease and the statute both allow.

One timing point helps landlords. Suppose the tenant abandons and the landlord, using a lease remedy that meets Civil Code section 1951.4, keeps the lease in force instead of terminating it. The Court of Appeal has said that the landlord has not then received possession in the statutory sense, so the duty to return the deposit has not arisen. (250 L.L.C., supra, 131 Cal.App.4th 703.) Our page on breaking a commercial lease early explains that remedy.

What to bring to the first meeting

The lease and every amendment, with the deposit clause marked.
Proof of the deposit amount and of the date possession was returned.
Move-out photos, the walkthrough report, and any accounting or invoices from the landlord.
Any notice that the building was sold or the deposit was transferred.

Frequently asked questions

We moved out of our office two months ago and the landlord kept the whole deposit. What are the rules for commercial deposits?

California Civil Code section 1950.7 lets a commercial landlord keep only what is reasonably necessary to cover unpaid rent, repair damage you caused, or clean the space. Whatever remained was due no later than 30 days after the landlord received possession. Two months of silence is past that deadline unless your lease validly extends it. Send a written demand, and ask for the basis of every deduction.

How long does a commercial landlord have to return a security deposit in California?

No later than 30 days after the landlord receives possession, in most cases. If the landlord's only claim is unpaid rent, and the deposit is larger than one month's rent plus a designated last month's rent, the excess over one month's rent is due within two weeks. (Civ. Code, § 1950.7, subd. (c).) A California commercial lease may set a different period.

Can a commercial landlord keep the deposit for future rent?

Not under the statute alone. A California Court of Appeal held that section 1950.7 allows a commercial deposit to be applied to rent that has accrued by the time the deposit is due back. It does not reach damages for future rent after the lease is terminated. (250 L.L.C. v. PhotoPoint Corp. (2005) 131 Cal.App.4th 703.) The same decision said the parties may agree otherwise in the lease.

Is there a limit on the amount of a commercial security deposit in California?

Section 1950.7 sets none. The California statute that governs deposits on nonresidential property regulates what the landlord may claim, when the balance must be returned, and what happens on a sale. It does not cap the amount, and it does not require the landlord to pay interest. The size of a commercial deposit is a matter of negotiation and lease wording.

Our landlord sold the building while holding our deposit. Who owes it back to us when the lease ends?

That depends on what the seller did. Under California law a departing landlord must act within a reasonable time. It may transfer what remains of the deposit to its successor and notify the tenant, by personal delivery or certified mail, of the transfer, any claims on the deposit, and the new owner's name and address. Otherwise it returns the balance to the tenant. A buyer that receives the deposit takes on the landlord's obligations for it. (Civ. Code, § 1950.7, subds. (d), (e).)

Talk to a California attorney about a commercial deposit

If a commercial deposit is overdue, or a former tenant is contesting your deductions, call (909) 235-6116 or contact us online. Kolmogorov Law, P.C. represents landlords and tenants of commercial property from its office in Irvine, California.

Related reading: our real estate litigation practice and the commercial lease disputes guide.

This page provides general information about California law and is not legal advice. Outcomes depend on the lease, the condition of the premises, the facts, and the court.