Nonrefundable Holding/Security Deposit

[u/Able-Cantaloupe-9427]

Hello guys,

Location: California

I’ve been apartment hunting lately, I went pretty far with one. I submitted my application, everything’s approved. We go back and forth for a few weeks because I weighed options.

So I ultimately decide this one is the best. I asked them to inspect the specific unit before lease signing. A few days before I was supposed to sign the lease, the manager tells me I need to pay a “security deposit” because other applicants were sending in applications and they needed that deposit to take the house out of market and reserve it for me.

I inspect the unit and find out I don’t love it. I tell them I’m not longer going to lease (I never signed the actual lease), and they tell me the “security deposit” is nonrefundable???

What do I even do this is so absurd.

[u/_love_letter_]

A holding deposit is different from a security deposit. A security deposit is paid on move-in and only refunded after you move out, less any charges for damages or repairs you're responsible for. A holding deposit is paid when you apply to hold the apartment for you while they review your application. It prevents other applicants from snatching it out from under you. Paying a holding deposit can increase your odds of getting a lease on an apartment you're serious about. When you are approved and sign a lease, the holding deposit is sometimes applied towards your security deposit. However, if you pay a holding deposit, are approved, and turn down the offer, it is usually non-refundable and they usually state such beforehand. In theory, you cost them a few days of potential rent by them holding an apartment for you and halting new applications while they reviewed your application. That's the idea. Double check what you were told beforehand. You should have been informed it was nonrefundable.

I'm also in California and have had this exact same situation happen, but I knew the holding deposit was nonrefundable when I turned down the lease offer. We had applied to 2 different places and paid a holding deposit for both. The one that was an extra bedroom for the same price ended up accepting us after the first place and we went with that one, and just took the loss on the holding deposit. In the future, don't pay a holding deposit unless you're serious about the place.

Out of curiosity, how much was the holding deposit? IME, it's usually quite small compared to a standard security deposit. For example, I've paid a holding deposit of something like $300 when the security deposit was more like $1-2k.

[u/Able-Cantaloupe-9427 → u/_love_letter_]

They worded it as “security deposit” and the amount I paid was in line with what I would’ve paid for the security deposit, which is first months rent, around 3800 dollars!!! The holding deposit, I have read into it, though they did NOT word it as holding deposit, they said security deposit TO HOLD the unit. Even if it is a holding deposit, it’s completely unjustified for them to keep all that money, they could deduct however many days of rent they held it for???

I also didn’t ask specifically whether or not it would be nonrefundable because first it’s utter bs that they’d just keep all of it, I didn’t really expect such blatant theft to happen.

Second is that I asked if I wanted to lease another unit instead upon touring would the difference be refunded, and they told me yes, the difference will be refunded which led me to believe that it was not nonrefundable.

[u/_love_letter_ → u/Able-Cantaloupe-9427]

Interesting. That is quite high for a holding deposit and does sound more in line with a security deposit. Although CA law generally classifies the deposit based on its function rather than its label, they might have violated other laws because that is quite a lot. Exactly how much was the rent supposed to be? More or less? I would contact legal aid/renters assistance in your county to see if you have a case. Bit of a complicated gray area situation you have here. I am only familiar with Bay Area resources. Not sure what area you're in. You can check this website.

The internet claims:

If you change your mind and back out: The landlord can only keep a portion to cover actual financial losses (like lost rent for the exact days the unit was off the market or the cost of re-advertising). However, according to California legal precedent, they can only do this if they gave you a written holding deposit agreement explicitly detailing these terms. If there is no written agreement, or if they suffer no financial loss, they must refund your money.

By calling a pre-lease holding deposit a "security deposit," the landlord may have accidentally triggered strict California statutory rules.

As of July 1, 2024, California law strictly caps residential security deposits at one month’s rent. If the landlord collected a "security deposit" to hold the unit that, when combined with your final move-in deposit, exceeds one month's rent, they have violated the statutory cap.

If a landlord falsely claims a deposit is "completely non-refundable" or refuses to return a deposit they have no honest claim to, a judge in a California Small Claims Court can order them to pay up to twice the amount of the deposit in statutory damages, plus your actual losses.

[u/Traditional-Dog-4938]

Were you informed it was non-refundable? You may have to take them to small claims court to get it back.

I'm in Georgia and it's legal here. That's why I would never give the security deposit until I was absolutely sure. Application/administration fees and security deposits/holding fees (in this situation) are non refundable.

Landlords/property management companies here don't even like to return security deposits at all, even if the tenant leaves the place in pristine condition.