New Laws That Impact Buyers Who Become Landlords And Sellers Who Become Tenants

By David Hamerslough and Victoria B. Naidorf
March 12, 2025

In our geographic area, market conditions and other factors can result in the buyer and seller negotiating for the seller to remain in possession of the property following the close of escrow. PRDS and C.A.R. have different forms for this purpose, depending upon the term of that possession. Where the term is less than 29 days, the PRDS form SOAS and the C.A.R. form SIP characterize the relationship as a license agreement, as distinguished from a landlord-tenant relationship. Where the term is 30 days or longer, the PRDS form RLMM and the C.A.R. form RLAS characterize the relationship as one between landlord and tenant.

The legislature just amended the provisions of Civil Code § 1950.5, which is the statute addressing deposits and other issues in residential tenancies. Buyers who become landlords and sellers who become tenants after close of escrow on the sale of a residence should be aware of these amendments and the impact they have on buyers’ and sellers’ obligations in these circumstances.

The following is a summary of some of the amendments:

• Beginning April 1, 2025, the landlord shall (i) take photographs of the unit within a reasonable time after the possession of the unit is returned to the landlord, but prior to any repairs or cleanings for which the landlord will make a deduction from or claim against the security deposit pursuant to this section, and (ii) shall take photographs of the unit within a reasonable time after such repairs or cleanings are completed.
• For tenancies that begin on or after July 1, 2025, the landlord shall take photographs of the unit immediately before, or at the inception of, the tenancy.
• When returning an itemized statement of any deductions from any security or damage deposit, the landlord shall, at the time that the itemized statement is delivered, provide copies of documents showing charges incurred and deducted by the landlord to repair or clean the premises as follows:
• The move-in, move-out, and post-repair and cleaning photographs; and
• A written explanation of the cost of the allowable repairs or cleanings.
• The photographs can be provided by mail, email, computer flash drive, or providing a link where the tenant may view those photographs online.
• Other rules apply if the repair to be done by the landlord cannot be reasonably completed within 21 calendar days after the tenant has vacated or if the documents from any person or entity providing services, materials, or supplies are not in the landlord’s possession within 21 calendar days after the tenant has vacated. The landlord may deduct the amount of a good-faith estimate of the charges that will be incurred and provide the estimate with the itemized statement. If the reason for the delay is the lack of documentation from the service provider, the itemized statement shall include the name, address, and telephone number of the person or entity.
• Within 14 calendar days of completing the repair or receiving the documentation, the landlord is required to complete the requirements identified above for returning an itemized statement that would otherwise apply.

There are other considerations that the buyer/landlord and seller/tenant should be aware of:

1. the requirements regarding returning an itemized statement do not apply if the deductions for repairs and cleaning together do not exceed $125.00 or the tenant has waived their rights in this regard. The statute has specific criteria that must be met for any such waiver to be asserted;
2. the landlord is not entitled to claim any amount of the security or damage deposit if the landlord, in bad faith, fails to comply with these requirements; and
3. the landlord can’t claim deductions from the security or damage deposit for damage or defective conditions that preexisted the tenancy or for ordinary wear and tear.

Another issue to consider is that as of July 1, 2024, residential security or damage deposits, with minor exceptions, are limited to one month’s rent. Sellers often negotiate for what is characterized as a “free” post-close-of-escrow possession. The occupancy agreement would show that no rent is to be paid. An issue that has been raised is whether it is permissible for a security/damage deposit to be requested under this circumstance. Landlord-tenant specialists have indicated that a security/damage deposit under this circumstance would be contrary to the new law.

The question being raised is, how can the buyer/landlord protect themselves in the event that the seller/tenant has damaged the property during their occupancy? Some of the options that have been discussed by brokers include (1) holding back some of the seller’s proceeds to address this issue, (2) negotiating a lower purchase price, assuming that market conditions allow for such an agreement, or (3) establishing what rent would be on either a per diem or monthly basis and waiving the payment of rent in that amount but then using that amount of agreed-upon rent as the basis for the amount of the security/damage deposit. Consultation with a qualified California landlord-tenant attorney on this issue should occur before implementing any of these options.

Finally, another issue that should be considered is who is taking responsibility for such issues as holding the security/damage deposit, returning it with the itemized statement, and otherwise managing the interaction between the buyer/landlord and seller/tenant. There is a potential that a broker’s errors and omissions insurance policy may exclude property management. If a licensee is going to engage in any of these activities, it is suggested that they determine if there will be coverage under their policy before doing so.

It is easy to overlook the fact that a 30-day or more post-close-of-escrow occupancy does involve landlord-tenant issues. This is especially true for licensees who do not manage property or work with rental properties. If the buyer/landlord, seller/tenant, or their respective licensees have questions about these relationships, they should consult with a qualified California landlord-tenant attorney.

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