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I went to go see an apartment in San Francisco, CA and the said that they require a security deposit of 1.5x monthly rent just to apply for the unit. They claimed they would give the security deposit back if my application was declined. However, if my application is accepted, they are claiming that the security deposit is theirs to keep, regardless of wether or not I sign the lease and move in. i.e., if I'm approved but decline the lease, they're saying my security deposit is forfeit. That can't be legal, right?

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Can a landlord keep a security deposit if my apartment rental application is approved, but I back out of signing the lease? That can't be legal, right?

No. That is a violation of California CIV 1950.5.

Although 1950.5(b) reflects that one of the permissible purposes of a security deposit is "to reimburse the landlord for costs associated with processing a new tenant", item (e) limits that amount "as [is] reasonably necessary for the purposes specified in subdivision(b)". A deposit of 1.5 times the monthly rent clearly is excessive for "processing a new tenant", let alone processing an applicant who never became a tenant because no lease agreement was entered. All other permissible uses of security deposit are inapplicable in your matter.

Furthermore, if the landlord required a separate payment for the application, then your application fee satisfies the provision in 1950.5(b). This means that the landlord has the obligation to reimburse you 100% of the security deposit.

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