Legal Question in Real Estate Law in California

Re: Sub-leaser broke oral agreement, can I keep deposit

Oral leases are valid unless for more than a year. To the extent this was exactly a one-year deal, it is theoretically enforceable.

Your problem, as with most oral contracts, will be meeting the burden of proof as to the existence of the lease and its terms. If you have some credible witnesses and perhaps some indirect documentary evidence, you might prevail in small-claims court.

As to the deposit, your obligation is to return the portion (if any) that you're not entitled to keep, together with an accounting for what you've kept, within 15 days of the move-out date. You would be entitled to keep your estimated damages for the breach, among other things (cleaning, etc.). Whether you could keep all or only part of the deposit depends on your reasonable assessment of damages, taking into account that you must mitigate by attempting to re-rent.

You didn't mention the actual sums involved, but I suggest making a well-documented and reasonable partial refund, and hope you thereby avoid the hassle of going to court. If, perchance, the deposit you're holding is woefully inadequate to cover your damages, you might consider suit against the former subtenant.

This will give you an idea of the tactical and practical considerations. Your decision should also take into account personalities, amounts of money, depth of pockets, chances for retaliation, how much spare time you have, and a host of other subjective factors.