By law, security deposits aren’t mandatory in North Carolina. That said, most – if not all, landlords require tenants to pay it upfront before they can occupy their properties and it’s for a good reason.
Renting out a property presents certain liabilities to a landlord. The tenant may damage the property, break their lease midway, or refuse to pay rent, among other things.
A security deposit act like a safety net, protecting the landlord against such issues. For instance, when a tenant causes excessive property damage, you may be able to minimize your losses by making justifiable deductions to the tenant’s deposit.
The North Carolina security deposit laws are contained in the statewide landlord-tenant laws. The state provides landlords with specific laws and guidelines on how to go about using and handling a tenant’s deposits. These laws can cover what amount to charge as a deposit, how to store it, and when to return it among other things.
Therefore, as a North Carolina landlord, understanding the state’s security deposit laws is key to avoiding potential legal issues. Generally speaking, non-compliance to security deposit rules can attract heavy penalties – including, being liable for damages and attorney fees.
The following is a basic overview of the North Carolina Security Deposit Laws.
Security Deposit Limit
Is there a limit to how much security deposit you can charge your North Carolina tenant? Yes, there is! The amount of security deposit to charge your tenant depends on the lease terms.
For week-to-week tenants, you must charge them no more than two weeks’ rent for the security deposit. For month-to-month leases, you must charge them no more than the equivalent of 1.5 months of rent as a security deposit. And for leases exceeding one month, you must charge your tenants no more than 2 months’ rent as a security deposit.
It should be noted that there is an exception to these limits, though and that is in the leasing of single homes.
Additional Pet Deposit
Does your tenant have a pet? If so, as a landlord in North Carolina, you can charge the tenant a non-refundable fee as a pet deposit. Unlike the aforementioned deposits, however, there is no limit here. That notwithstanding, ensure you charge a ‘reasonable amount.
Overcharging your tenants will make your property less desirable. Undercharging, on the other hand, may expose you to financial liabilities. Check what landlords in your area charge for this fee to ensure that you remain competitive but fair.
Security Deposit Holdings
So, how should you store your tenants’ security deposits in North Carolina? You have two choices:
- Store the deposit in a trust account. The account/ banking institution must meet either one of the following criteria: is licensed and federally insured or be located in the State of North Carolina.
- Post a bond from a state-licensed insurance company. The bond should be equivalent to the deposit amount held for the tenant.
Once you’ve stored the deposit, you must then notify the tenant in writing. In the notice, you must state the name and address of the institution, i.e. the bank or insurance firm holding the deposit. This must be done within 30 days.
Security Deposit Deductions
You may make deductions to a tenant’s deposit for several legitimate reasons. You can use the tenant’s deposit to cover:
- Unpaid rent. A tenant is legally bound to pay rent for the entire time the lease is active, regardless of if they are living on the premises.
- Unpaid water, sewage services, or other utility bills. A tenant must clear all utility bills before moving out. If they fail to do so, you can make appropriate deductions from their deposit.
- Costs of re-renting the unit. You may need to find a replacement tenant after the tenant breaks their lease agreement. In such a case, you’d be within your rights as a landlord to use part of the tenant’s deposit for that purpose.
- Costs of storing or removing the tenant’s property after moving out.
You can also make deductions from the tenant’s deposit due to excessive property damage. Examples of these include a damaged door handle, a hole in the middle of a door, a broken toilet seat, or a broken bathroom mirror.
You cannot, however, make deductions on the tenant’s deposit for reasons such as loose door handles or dirty grout. That’s because such damages usually result from the normal wear and tear that a property will experience due to everyday use.
It should also be noted that you can only use the deposit after the tenancy has ended.
Security Deposit as Last Month’s Rent
In North Carolina, a tenant cannot use their deposit as last month’s rent. The only exception to this is if both the landlord and the tenant agree to do so. Should you choose this method, this agreement must be in writing.
Security Deposit Return
In North Carolina, you have exactly 30 days to return the tenant’s deposit after they move out. If there are any deductions made, you must provide the tenant with an itemized list.
Failure to return the tenant’s deposit on time can result in some penalties, including forfeiting all rights to make deductions to the deposit and paying damages to the tenant.
In case you don’t have the tenant’s forwarding address, you must hold on to the deposit for at least 6 months, after which time, you’ll be under no obligation to continue storing it.
Sale of Property
If you decide to sell the property midway through the lease, you’ll have two options in regards to the tenant’s deposit. You can either return the deposit to the tenant, minus any legitimate deductions or you can transfer the security deposit over to the incoming landlord.
Now that you’ve learned more about security deposit law and some basics of landlord-tenant laws you are better equipped to protect your investments. However, if you still have questions or want help managing your properties consider enlisting the services of a qualified property management company.
Ballo Realty Property Management can help you with all your property management needs including tenant screenings, evictions, property maintenance, and more. Their team of qualified real estate experts will be happy to answer any questions you may have.
Disclaimer: This blog is only meant for educational purposes. For expert help, please get in touch with an experienced property management company or hire a qualified attorney.