Tuesday, September 28, 2010

Security Deposits: How Much Can I Require, and What Do I Have to with Them?

Residential security deposit law in North Carolina is governed by the Tenant Security Deposit Act and can be found at N.C.G.S. 42-50 through 42-55. As is often the case in tenancy law, this act primarily addresses issues in residential tenancies so this article will be addressed to residential security deposits.

How much can I charge for the security deposit?

Unfortunately the answer to this question is a moving target. The amount of security deposit depends on the term of the tenancy as follows:

(a) If the term of the tenancy is week to week, the landlord can require two weeks rent;

(b) If the term of the tenancy is month to month, the landlord can require one and one-half month’s rent; or

(c) If the term of the tenancy exceeds one month, the landlord can charge two months rent. See N.C.G.S. 42-51.

Are there additional fees a landlord can charge?

Landlords are also entitled to a non-refundable "pet fee". The only requirement for the "pet fee" is that it must be reasonable, and the tenant must have a pet.

I have the security deposit, now what do I do with it?

A landlord must place the security deposit in a trust account with a licensed and insured bank or savings institution in North Carolina, and notify the tenant of the bank's name and address within 30 days after the beginning of the lease term. There are a couple of minor exceptions to this rule but they involve the landlord obtaining a bond for the amount of the deposit, and will not affect most landlords.

If you know where you will place the security deposit at the time you prepare the lease, it is wise to include this notification in the lease.

If you move the security deposit at any time, you should notify the tenant immediately in writing of the new location.

When must the deposit be returned?

The landlord must return the deposit to the tenant within thirty days after the end of the rental period. If the landlord deducts from the deposit for damage to the property, or for unpaid rent, those charges must be described to the tenant in writing, and the writing (also referred to as an accounting) plus any portion of the deposit still due to the tenant must be delivered within that same thirty-day period.

If the extent of the landlord's claim against the security deposit cannot be determined within 30 days, the landlord shall provide the tenant with an interim accounting no later than 30 days after termination of the tenancy and delivery of possession of the premises to the landlord and shall provide a final accounting within 60 days after termination of the tenancy and delivery of possession of the premises to the landlord.


What deductions can the landlord make from the security deposit?

You may only take deductions from the security deposit for: the tenant's nonpayment of rent and costs for water or sewer services; damage to the premises beyond reasonable wear and tear; nonfulfillment of rental period; any unpaid bills that become a lien against the demised property due to the tenant's occupancy; costs of re-renting the premises after breach by the tenant; costs of removal and storage of tenant's property after a summary ejectment proceeding; or court costs in connection with terminating a tenancy.

Additionally, it should go without saying but, you can only deduct your actual damages, and you should keep receipts to substantiate your deductions in case you are sued by the tenant.

What if I don’t know where to send the security deposit to the tenant after he vacates the property?

If the tenant's address is unknown the landlord shall apply the deposit as permitted after a period of 30 days and the landlord shall hold the balance of the deposit for collection by the tenant for at least six months.

It is a good practice to send the deposit to the tenant via certified mail. If the mail is returned unopened put in the tenant’s file the same way. If you are later sued for failure to return the deposit you will have clear evidence that you attempted to return it.

What if I fail to comply with the act?

If the landlord fails to account for and/or refund the balance of the tenant's security deposit as required by this Article, the tenant may institute a civil action to require the accounting of and the recovery of the balance of the deposit.

The willful failure of a landlord to comply with the deposit, bond, or notice requirements of this Article shall void the landlord's right to retain any portion of the tenant's security deposit as otherwise permitted under G.S. 42-51.

In addition to other remedies, the tenant may recover damages resulting from noncompliance by the landlord; and upon a finding by the court that landlord is in willful noncompliance, the court may award attorney's fees to be taxed as part of the costs of court.

What if I sell or buy a rental property already occupied by tenants?


Within 30 days after the termination of the landlord's interest in the dwelling unit in question, the landlord shall, do one of the following acts:

(1) Transfer the portion of the deposit remaining after any lawful deductions made under this section to the landlord's successor in interest and thereafter notify the tenant by mail of such transfer and of the transferee's name and address; or
(2) Return the portion of the deposit remaining after any lawful deductions to the tenant.

Upon receipt of the deposit the purchaser must place it in a trust account with a licensed and insured bank or savings institution in North Carolina, and notify the tenant of the bank's name and address within 30 days after the beginning of the lease term.

Happy landlording!

2 comments:

  1. As is often the case in tenancy law, this act primarily addresses issues in residential security tenancies so this article will be addressed to residential security deposits.

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