San Francisco Security Deposits, Fees and Interest: key questions

It's tempting to treat San Francisco's deposit rules as California's statewide framework plus a small city adjustment. That undersells how separate these two systems actually are. California's Civil Code sets the deposit cap, the photo-documentation requirement, and the 21-day return clock, uniformly across the whole state. San Francisco's own Rent Ordinance layers on an entirely separate obligation, annual interest payments, that has nothing to do with the state cap and applies on its own schedule.

A landlord who's fully compliant with the state cap and photo requirements can still be behind on the city's interest obligation, and the reverse is just as true. Treating this as one blended rule is how landlords miss the interest requirement specifically, since it doesn't show up anywhere in generic California landlord guidance that isn't written for a rent-controlled city.

Since July 1, 2024, a security deposit in California is capped at one month's rent, whether the unit is furnished or unfurnished. This replaced the older framework that allowed up to two months for an unfurnished unit and three for a furnished one, a meaningful reduction that landlords who haven't updated their lease templates since 2024 may still be missing.

There's a narrow exception. A landlord who is a natural person, an LLC whose members are all natural persons, or a family trust, and who owns no more than 2 residential rental properties totaling no more than 4 units combined, can still charge up to 2 months' rent. This exception has a hard limit of its own: it doesn't apply at all when the prospective tenant is an active military service member, who gets the standard 1-month cap regardless of the landlord's portfolio size.

AB 2801 took effect January 1, 2026, and it's specific about when photos are required, not just that documentation is a good idea generally. Three distinct points need timestamped photographs, tied to the individual tenancy: the unit after cleaning and repairs but before the tenant takes possession, the unit immediately after the tenant vacates and before any cleaning or repair work begins, and the unit again after that cleaning and repair work is complete.

Skipping this doesn't automatically void a deduction, but it changes the landlord's position substantially if a dispute reaches a court. Without contemporaneous photo documentation, a court can draw an adverse inference against the landlord, and if the deduction is later found to have been made in bad faith, meaning the landlord knew it was improper or acted with reckless disregard, the tenant can recover up to twice the deposit amount on top of actual damages, costs, and attorney fees.

Once a tenant vacates, a landlord has 21 days to either return the full deposit or send a refund along with an itemized statement explaining any deductions. This clock runs from the date the tenant actually vacates and returns possession of the unit, not from when a forwarding address is received. A landlord waiting on a forwarding address before starting the 21-day countdown is working from the wrong trigger entirely.

Documentation requirements scale with the size of a deduction. Any single deduction exceeding $125 needs supporting paperwork, an invoice, a receipt, or a record of hours worked and the rate charged, attached to the itemized statement. Separately, after a tenant gives notice, the landlord has to tell them in writing that they have the right to request an initial, pre-move-out inspection, giving the tenant a chance to fix flagged issues themselves before the final accounting happens.

Separate from every rule above, San Francisco requires landlords to pay tenants annual interest on their security deposit, under Chapter 49 of the city's Administrative Code. The Rent Board recalculates this rate every year effective March 1, based on the annual average of the 90-Day AA Financial Commercial Paper Interest Rate. The rate for deposits held between March 1, 2026 and February 28, 2027 is 4.2%.

Interest is paid annually on the tenant's own "anniversary" date, the same day and month the deposit was originally received, and this requirement applies to tenancies that began after September 1, 1983. Payment can be made directly or as a rent credit, and landlords may deduct 50% of the annual Rent Board fee from the interest they owe. Because this rate changes every March, a figure a landlord remembers from a prior year is likely already out of date.

A San Francisco tenant vacates a unit on the 10th of the month. The landlord has photos from move-in, and takes photos again immediately after the tenant leaves, before starting any cleaning. After repairs and cleaning wrap up, a third round of photos documents the finished unit. The landlord deducts $400 for carpet cleaning beyond normal wear, attaches the invoice since it exceeds $125, and mails the deposit balance with the itemized statement 18 days after the vacate date, inside the 21-day window. Separately, because the tenancy started 3 years ago, the landlord owes an annual interest payment calculated at whatever rate is applied on this tenancy's specific anniversary date each year, tracked independently of the move-out accounting entirely.