Legal Question in Real Estate Law in California

Whether these $100-per-pet charges would be held to be "security for a rental agreement" under Civil Code section 1950.5(b) or, as the ownr/seller claims, one-time additions to rent, is a difficult question. I certainly can't be sure a court wouldn't recharacterize them as a security deposit, but the owner/seller has a strong argument that the charges are not refundable and not compensation in the event of pet damage, and therefre are earned by her. As to your right or ability, once you are the owner, to collect another fee, I'd say the tenants would have a strong argument that they've already paid for the privilege of moving in a pet, and any new or additional charge or fee by you is a change in the rental terms and requires prior notice, just like any other rent increase. Might also invoke local rent-control rules. All of this is kind of an educated guess, as I have no knowledge of any appellate court decision on point.

Pet deposits are treated as part of the security deposit. The only thing treated differently by law is an application screening fee. Under California law, a lease or rental agreement canot say that a security deposit is "nonrefundable." (Civ. Code, sect. 1950.5, subd. (m).)

All of the security deposits should be transferred to you, and made a term of the escrow. Otherwise, you will face liability when you are the owner and the tenants move out.