We are doing the masonry work to about 8 foot sections of wall, waiting for the mortar to dry, then installing joists to that section.

I wanted to get some opinions for more experienced landlords, also if you think it is excessive how much of the deposit should I keep?

I thought the statewide moratorium was for increases in excess of 2.6%?

Work involved would be getting plan approval, putting in a separate entrance, adhering to fire code (insulating the two units from each other), adding a kitchen, and putting up dry wall to create a bedroom area.

The basement was previously finished (without permit) and has evidence of mold so we are gutting out the dry walls. 

. $1500 is an excessive fee regardless.

Owning a property with all cash/no mortgage only does better ROI-wise if the NOI is awful due to vacancies or excessive repairs.

At low temperature, lots of plaster will shrink and crack off old walls, for instance, heavily-worn cast iron drain piping will dry out even more and crack.

If the damage were excessive beyond the pet fee I would charge the damage against the security deposit.  

Find a community that is easily manageable (small area at first then once its dry branch out) and focus on that community.