A security deposit is a sum of money not included in the price of rent that a tenant pays the landlord before moving into a home. It is typically calculated as a multiple of the cost of the rent. With a 2X multiple, for example, a tenant would need to pay 2X the price of rent as the deposit. So if the monthly rent was $900, the deposit would amount to $1,800.
North Carolina's security deposit law states that security deposits are normally refundable at the end of the lease term as long as the tenant has not violated the terms of the lease agreement. A common lease violation that results in a landlord withholding part or all of the security deposit is excessive property damage.
Excessive property damage is not the same thing as normal wear and tear. Excessive property damage is essentially any damage that exceeds normal wear and tear. This may include:
- A carpet soaked in pet urine.
- Damaged or missing door handles or locks.
- A hole in the middle of a door.
- A smashed bathroom mirror.
If this is the case, the North Carolina landlord-tenant law states that landlords may make the appropriate deductions from the security deposit. In this post, we’ll cover the basics of the security deposit laws in North Carolina. Understanding these laws will help you avoid conflicts with your tenant regarding the use and return of their deposit.
Is there a limit to how much landlords can charge as a tenant security deposit?
How much you can charge a tenant as a security deposit in North Carolina depends on your individual lease agreement. For a weekly lease agreement, the maximum you can charge as a security deposit is 2 weeks’ worth of the rental payment.
For a monthly lease, you must not charge any amount exceeding one and a half month’s worth of rent. For fixed-term leases, the maximum you can charge is the equivalent of two month’s worth of rent.
There is no standard when it comes to pet deposits. The North Carolina law simply requires landlords to charge “reasonable, nonrefundable” pet deposits.
Can a landlord keep a tenant security deposit?
Yes. As a landlord, you can keep part or all of security deposits for various reasons. The following are some of the most common reasons for keeping security deposits:
- Excessive property damage. This includes chipped or broken tiles, holes in the walls, unauthorized paint colors, and anything else that is not considered normal wear and tear.
- Lost rental income. If a tenant abandons your rental unit, you may make appropriate deductions from their deposit to recover from the losses.
- Missing payments. If a tenant does not make their rent payments, you may use part of or all of their deposit to cover for this amount.
- Excessive cleaning costs. If a tenant leaves your property in deplorable conditions, you can deduct the appropriate amount from their deposit to pay to have the property cleaned. Remember, this does not include normal wear and tear.
- Unpaid utilities. If a tenant fails to pay the utility bills that they are responsible for, you can make appropriate deductions from their deposit to cover for these.
When should a landlord return a tenant’s security deposit?
Once your tenant moves out, you have exactly thirty days to return the tenant’s security deposit. You must return it either in person or via a certified mail.
If there are any deductions to make, you can extend the period to return the deposit to sixty days. However, you must still provide the tenant with an estimate of the charges and deductions within thirty days of their move-out.
If you don’t have the tenant’s forwarding address, then you must keep the remaining portion of the deposit for a further 6 months to allow the tenant time to claim their deposit.
Is a walk-through inspection necessary in North Carolina?
A walk-through inspection allows you to examine whether the tenant returned the property in the same condition they found it, barring normal wear and tear. While some states require a walk-through inspection, North Carolina's security deposit law does not.
What happens if the property changes hands midway through the lease?
If you decide to sell your property before the end of a tenant’s lease agreement, the tenant security deposit act gives you two options in regard to handling your security deposits:
- You can transfer the deposit to the new owner and notify your tenant of the transfer. In this notice, you must state the name and address of the incoming landlord, as well as the amount of the security deposit transferred to them.
- You may also choose to return the deposit back to the tenant, less any lawful deductions.
How should a landlord store a tenant’s security deposit in North Carolina?
When it comes to storing a tenant’s security deposit, you have two options. One option is to store the deposit in a trust account. The banking institution must be located within North Carolina and must be licensed and insured.
The other option is to post a surety bond for the security deposit amount. You must then keep the deposit in a trust account outside of the state.
If have any questions regarding the security deposit laws in North Carolina, please consider hiring a qualified attorney or an experienced property management company. At T.E. Johnson & Sons, our goal is to help clients manage their rental properties professionally and reliably.
Disclaimer: This article is in no way a substitute for legal expert advice from a qualified attorney in North Carolina. Laws change from time to time, and this post might not be updated at the time of your visit.