Holding Deposits on California Rentals: What the Law Does and Doesn't Say
No California statute uses the term "holding deposit." The term appears instead in consumer guidance from the California Department of Real Estate (DRE), which describes a holding deposit as money held to take a unit off the market while an application is processed and says it must be returned in full if the landlord does not accept the applicant. What the law does settle is that, once money is applied to the tenancy, California's security deposit cap covers any payment, fee, deposit or charge imposed at the beginning of the tenancy, however it is labeled (Civil Code § 1950.5(b), (c)(1)).
The short version
- No statute names or regulates holding deposits; treat the rules below as guidance plus the deposit statute.
- DRE advises that a holding deposit be returned in full if the applicant is not accepted, and that the agreement and a receipt be in writing.
- Whether a pre-lease holding deposit is itself "security" under § 1950.5(b) is not settled by any statute or case covered here.
- If a holding deposit is later applied to the security deposit or to rent, the total security collected must stay within the cap.
- A holding deposit is not a screening fee; the § 1950.6 fee rules are separate.
What the law actually covers
The deposit statute. Civil Code § 1950.5(b) defines "security" as "any payment, fee, deposit, or charge, including, but not limited to, any payment, fee, deposit, or charge, except as provided in Section 1950.6, that is imposed at the beginning of the tenancy to be used to reimburse the landlord for costs associated with processing a new tenant or that is imposed as an advance payment of rent, used or to be used for any purpose." Under § 1950.5(c)(1), a landlord "shall not demand or receive security, however denominated," above one month's rent, in addition to the first month's rent paid on or before initial occupancy. The full cap, its exceptions and the small-landlord rule are on the security deposits law page.
The "nonrefundable" ban. "A lease or rental agreement shall not contain a provision characterizing any security as 'nonrefundable'" (§ 1950.5(n)).
The open question. A holding deposit is usually paid before any lease is signed, so before any tenancy begins. Whether that payment is "imposed at the beginning of the tenancy," and so is security from the day it is paid, has no answer in the statutes or cases covered here. If the answer matters to a decision you are making, ask counsel.
What is not a holding deposit. An application screening fee under § 1950.6 is a separate payment, defined as nonrefundable, used to buy a credit report and process an application, with its own cap, receipt and refund rules. It is not security (§ 1950.6(k)). Do not combine the two into one payment. See application and screening fees.
What DRE guidance says
The DRE's online guidebook chapter "The Rental Application" covers holding deposits. It cites no statute for any of these points, so treat them as the agency's guidance, not as law:
- A holding deposit is money "tendered by the tenant/applicant and held by the landlord to take an available rental unit off of the market while the applicant's application is being processed," or, after approval and signing, to hold the unit for a stated period.
- "Most landlords utilize a holding deposit agreement."
- "If you give the landlord a holding deposit when you submit your rental application, but the landlord does not accept you as a tenant, the landlord must return the entire holding deposit."
- If the applicant changes their mind, "the landlord can keep some (and perhaps all)." The DRE says the amount "depends on the costs that the landlord incurred in holding the unit such as additional advertising costs to find a new tenant or lost rent."
- Get the agreement and a receipt in writing.
No statute was identified that sets how much a landlord may keep if an applicant backs out, so this page gives no percentage or day count.
What a holding deposit agreement should cover
If you use one, put it in a short written agreement signed before any money changes hands. Describe each item; this is not model language.
| Item | What to include | Why |
|---|---|---|
| Amount and payment method | The exact sum and how it was paid | Basis for the receipt and any refund |
| The unit and the hold period | Address, unit, and the start and end dates of the hold | Defines what the applicant is paying for |
| What happens if the applicant is not accepted | Full return, and how and when it will be sent | Matches DRE guidance |
| What happens if the applicant withdraws | How any amount kept would be tied to actual holding costs, such as advertising or lost rent | DRE ties any amount kept to the landlord's costs; no statute sets a figure |
| What happens if a lease is signed | Whether the money is returned or applied to the security deposit or first month's rent | If applied to security, the total must stay within the cap |
| Receipt | A dated receipt for the payment | DRE advises it; any payer may also require a written receipt (Civil Code § 1499) |
| Relationship to the screening fee | A statement that it is separate from any screening fee | Keeps the § 1950.6 rules clean |
Holding deposit mistakes to avoid
- Calling it "nonrefundable." A lease may not call any security nonrefundable (§ 1950.5(n)), which matters once the money is applied as security, and DRE guidance says the deposit comes back in full if the applicant is not accepted.
- Going over the cap when the lease is signed. Add the holding deposit to everything else collected as security. Run the numbers in the security deposit calculator.
- Taking holds from several applicants for one unit. A hold is meant to take a unit off the market for one applicant while that application is processed.
- Different terms for different applicants. The regulations list less favorable deposits or other financial conditions tied to a rental subsidy as source-of-income discrimination (2 CCR § 12141(a)(4)), and the FTC's landlord guidance treats requiring a larger deposit than for another applicant, based on a report, as adverse action. Use one standard holding deposit agreement for everyone.
- No paper trail. Without a signed agreement and a receipt, neither side can show what was agreed.
For the screening order the hold fits into, see tenant screening step by step. When the lease is signed, the lease signing day checklist covers how to apply the money.
For owners
A holding deposit is optional. If you use one, keep it modest, put every term in writing, and decide in advance whether it will be refunded or applied when the lease is signed. If you plan to keep any of it when an applicant withdraws, tie the amount to costs you can document, because no statute gives you a figure to rely on, and get advice before doing so.
For renters
Before paying a holding deposit, ask for the agreement in writing and read what happens if you are turned down, if you change your mind, and if you sign. Get a receipt. Under DRE guidance, if the landlord does not accept you, the whole deposit should come back. If you sign the lease and the money is applied to your security deposit, check that the total security stays within the cap. The Coronado guide to applying for a rental covers the rest of the application.
Local rules
Some cities add rules on top of state law, such as local just-cause, relocation or rental registration requirements; check your city's code. Coronado has no local rent-control or just-cause ordinance as of October 2026 (based on a review of its code's contents).
Frequently asked questions
Are holding deposits legal in California?
No California statute names or regulates holding deposits. The DRE's consumer guidance describes them, says most landlords use a written holding deposit agreement, and says the deposit must be returned in full if the landlord does not accept the applicant. That is guidance, not a statute.
Is a holding deposit refundable in California?
Under DRE guidance, yes if the landlord does not accept you: the entire holding deposit should be returned. If you change your mind, DRE says the landlord can keep some, and perhaps all, depending on the landlord's actual costs of holding the unit. No statute sets the amount.
Does a holding deposit count toward the security deposit limit?
Whether a holding deposit is itself security before any tenancy begins is not settled by any statute or case covered here. What is clear is that if the holding deposit is applied to the security deposit or to rent, the total security collected must stay within the § 1950.5(c)(1) cap, because security includes any payment, fee, deposit or charge imposed at the beginning of the tenancy, however it is labeled.
Is a holding deposit the same as an application fee?
No. An application screening fee under Civil Code § 1950.6 is defined as a nonrefundable payment to buy a credit report and process an application (though some refunds are required), capped at $30 per applicant, adjustable for CPI since 1998, and it is not security (§ 1950.6(k)). A holding deposit is a separate payment to hold the unit.
How much can a landlord keep if I back out?
No statute sets a figure. DRE guidance says the amount depends on the costs the landlord incurred in holding the unit, such as extra advertising or lost rent, and that the landlord can keep some and perhaps all. Read your holding deposit agreement, and ask counsel if you disagree with an amount kept.
This is general information, not legal advice. Laws change; confirm the current text and your situation with a California attorney.
McKee Properties manages rentals from its Coronado office; contact us with questions about your property.
Sources
- Civil Code § 1950.5 (opens in a new tab)
- Civil Code § 1950.6 (opens in a new tab)
- Civil Code § 1499 (opens in a new tab)
- 2 CCR § 12141 (opens in a new tab)
- California DRE, The Rental Application (guidance) (opens in a new tab)
- FTC, Using Consumer Reports: What Landlords Need to Know (opens in a new tab)
Verified October 19, 2026.
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