Legal Question in Real Estate Law in California

Re: Can I, the owner, keep the security deposit?

Assuming your deposit agreement includes losses of this type, either expressly or by implication, you can retain enough to cover your actual damages (lost rent net of related costs) for any period the rental unit was necessarily not rented because of the prospective tenant's failure to take the premises, and re-renting costs (advertising, etc.) to the extent you can document them.

There is a lot of squabbling and litigation over "holding deposits" and you should be very cautious not to exact anything that smacks of a penalty. Be prepared for a dispute, and by all means refund the portion you're not entitled to keep (if any) promptly, along with a written itemization. Don't forget to give the prospective tenant full credit for expenses you avoided (utilities, etc.) while the place was empty. Good luck.

Re: Can I, the owner, keep the security deposit?

If the deposit truly was a "hold" deposit, you may be able to keep a "reasonable" amount to compensate you for expenses in retaining a replacement tenant. If, however, the deposit was a "security deposit," then you have an obligation to return it. Since you state that your agreement was oral, it's basically a question of he said, she said.

Assuming it was a "hold" deposit and you keep a reasonable portion to cover your expenses in replacing this tenant, she is likely to still sue you in small claims court for the entire deposit. I would suggest that you negotiate a settlement amount up front, giving your bases for asking for compensation based on your claim that this was a "hold" deposit and get a written release agreement in exchange.

I would also suggest that in the future, any monies received from a tenant should be reflected in a writing signed by your tenant as to what that money actually represents.

Good luck.