Security Deposits When a Rental Is Sold

When a California rental is sold, Civil Code section 1950.5 gives the selling landlord two choices for each tenant's security deposit: transfer what remains after lawful deductions to the buyer and tell the tenant in writing, or return it to the tenant with an accounting. Before a voluntary sale, the seller also gives the buyer a written statement of the deposit held, the deductions and which choice was made. If the seller does neither, the buyer can become jointly and severally liable with the seller for the tenant's deposit, which is why buyers and escrow ask for the paperwork early.

This article is part of our tenant-occupied rentals knowledge center. For the rest of the sale, the lease and the rules included, see the pillar, selling a rental with tenants in Southern California. The deposit cap, which is a different question from what happens at a sale, is in subdivision (c) of the same section.

The two choices the statute gives the seller

Subdivision (i) applies whenever the landlord's interest ends, by sale, assignment, death, a receiver's appointment or otherwise. Within a reasonable time, the landlord or the landlord's agent does one of two things:

Transfer to the buyer: (i)(1)Return to the tenant: (i)(2)

What moves

The deposit remaining after lawful deductions

The deposit remaining after lawful deductions

To whom

The successor in interest, usually the buyer

The tenant

Paperwork

Written notice to the tenant

An accounting, as subdivision (h) provides

How the notice is delivered

Personal delivery, or first-class mail, postage prepaid

With the refund

Effect for the seller

Relieved of further liability for the deposit

Relieved of further liability for the deposit

The transfer notice has four required contents: that the deposit was transferred, any claims made against it, the amount deposited, and the names, addresses and telephone numbers of the new owners. If the notice is handed to the tenant in person, the tenant acknowledges receipt and signs the landlord's copy. Keep that copy.

When the tenant is staying through the sale, transferring the deposit is the usual choice, because the buyer becomes the landlord who will owe it back at move-out. Returning it is the other lawful route, but it changes the tenant's position mid-tenancy, so talk it through with escrow and an attorney before choosing it.

The statement the buyer receives before closing

Subdivision (j) adds a step for a voluntary transfer such as a sale. Before the transfer, the landlord delivers to the buyer a written statement of:

1. The security remaining after any lawful deductions.
2. An itemization of any lawful deductions from what the landlord received.
3. The landlord's election: transfer under (i)(1) or return under (i)(2).

The same subdivision says a transfer made without the statement does not affect the validity of title, so the sale itself still stands. What the statement protects is everyone's position on the money. A buyer pricing a rental needs it per unit, because the deposits are a liability the buyer is taking on.

What happens if the deposit never moves

This is the part sellers underestimate. Under subdivision (k)(1), if the seller does not comply with subdivision (i), the buyer and the seller are jointly and severally liable for repaying the deposit the tenant is entitled to. Until it makes restitution or provides the accounting, a buyer in that position may not require the tenant to post a replacement deposit for the amount that was not transferred.

Two limits soften it. Subdivision (k)(2) lets the buyer still recover from the tenant compensatory damages beyond the deposit the tenant originally paid. And subdivision (k)(3) protects a buyer who, after inquiry and reasonable investigation, believes in good faith that the deposit was transferred or returned: that buyer is not liable for the bad-faith damages in subdivision (m) or for deposit money that was never transferred. Subdivision (m) allows statutory damages of up to twice the amount of the deposit, in addition to actual damages, for bad-faith retention.

That good-faith protection is why a careful buyer asks for the subdivision (j) statement, the ledger and copies of the leases before closing. Having them ready makes your sale easier to close.

After closing, the buyer holds it

Subdivision (l) says that a successor who receives the deposit under (i)(1) has all the rights and obligations of a landlord holding it. Two of those obligations follow the deposit into the new owner's hands:

• The refund deadline. Subdivision (h) requires the itemized statement and the refund no later than 21 calendar days after the tenant vacates, with supporting receipts or invoices for deductions.
• The photographs. Subdivision (g) requires the landlord, since April 1, 2025, to photograph the unit after the tenant returns possession and before any repairs or cleaning are charged against the deposit, and again after that work is done. For tenancies that begin on or after July 1, 2025, it also requires photographs at or before the start of the tenancy. A buyer of a recent tenancy will want your move-in photographs, because the new owner may need them to support any deduction.

Separately, Civil Code section 1962, subdivision (c), requires the new owner to give tenants the owner, manager and rent-payment details within 15 days of taking over.

How deposits show up in escrow and on the offer sheet

On a tenant-occupied sale, the deposits are a line in your net, not a side conversation. Every figure is a dash because your numbers come from your leases.

LineWhat it isDocument

Deposit held, per unit

What each tenant paid as security

The lease and your ledger

Lawful deductions

Only those the statute allows, itemized

The subdivision (j) statement

Deposits transferred to the buyer

The balance the buyer takes on

Escrow instructions

Notice to each tenant

Transfer, claims, amount, new owner's contacts

Your signed or mailed copy

Estimated net to you

-

The offer sheet

The rules are state law, so they are the same for a rental in Pomona, where the city's rent stabilization and eviction control ordinance governs rents and terminations, as for one in Claremont, where the state's Tenant Protection Act governs covered rentals. A buyer may also ask tenants to confirm their deposit in writing; see tenant estoppel certificates.

If the tenant leaves before the sale

On the vacant path, the deposit question is simpler and earlier: the tenant moves out, and the subdivision (h) refund and itemization are yours to complete. That path has its own costs, and it can net more when the tenant is leaving anyway and owner-occupants would buy the house empty. Both paths are priced in occupied vs. vacant: pricing the same rental two ways. If you are thinking of offering a tenant money to leave, see cash for keys first.

Questions for escrow and an attorney

• Which election, transfer or return, fits each unit, and who prepares the subdivision (j) statement?
• Are any deductions lawful now, while the tenant is still in place?
• How will the tenant notice be delivered, and who keeps the proof?
• What if a deposit record is missing or the tenant remembers a different amount?

What this looks like in practice

These are the kinds of files that come in, described without names or figures.

• An owner whose property manager holds the leases and the deposits, and who lives in another state; see out-of-state owners.
• An heir to a rental whose parent kept deposits in a notebook, not a ledger, with tenants who remember the amounts differently.
• A landlord with a voucher tenant; see selling a Section 8 rental: what transfers.

Next step

Gather each lease, the deposit ledger and any move-in photographs. Then see how tenant-occupied rentals are handled, or send the address. Offers come from independent buyers and investors, and the offer sheet lists the deposits being transferred so the net is accurate. There is no cost and no obligation to get the two numbers and the written report.

Sources

• California Civil Code section 1950.5 (security deposits: transfer or return on a sale in subdivision (i), statement to the buyer in (j), successor liability in (k), successor's obligations in (l), refund timing in (h), photographs in (g), bad-faith damages in (m)), copy read on california.public.law, accessed November 6, 2026
• California Civil Code section 1962 (owner disclosures to tenants; successor owners within 15 days), copy read on california.public.law, accessed November 6, 2026
• City of Pomona, Rent Stabilization Program: pomonaca.gov (accessed September 26, 2026, as recorded in this site's Pomona area facts; not re-opened for this article)

Mr. Cali Offers is not a law firm and does not advise landlords or tenants on deposits; confirm the steps for your sale with escrow and an attorney. Cash offers come from independent buyers and investors who buy for their own account and may resell for profit; a cash offer is generally below what the open market would bring. Any value shown is a preliminary estimate, not an appraisal. Nothing here is legal, tax or financial advice.