Legal Question in Landlord & Tenant Law in California

That's an interesting question. I don't know that there is a clear answer, since that is not something that would have ever been worth anyone's time or money to take up to a court of appeals. However, it seems pretty clear that she would have to give you the full deposit back, unless there is some breach of the lease prior to close of escrow. I see two reasons for that. 1. As you point out, she can't have any repair or cleaning costs if she is selling to the current occupant. Though, as I noted, if there is some prior charge that has not been paid, she could theoretically deduct from the deposit to cover it. 2. If she were selling to another landlord, she would be obligated to refund the full deposit, and let the buyer get a new deposit from you, or as is the more common practice, the deposit would be transferred to the buyer, usually as a credit in escrow rather than cash. So if you were buying it to rent out, she would have to transfer the deposit to you. So by either reasoning, it seems she owes you the full deposit. A credit in escrow would be the simplest way to handle it.