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The Basics of North Carolina’s Security Deposit Law

north-carolina-security-deposit-law

When it comes to the security deposit, North Carolina landlords must strictly adhere to the security deposit law. The law stipulates how landlords should handle a tenant’s security deposit.

If this is handled incorrectly, the landlord may forfeit his or her right to keep it. If you are a landlord, here are the basics of the North Carolina security deposit law you need to know about.

Reasons for Keeping a Tenant’s Security Deposit

According to the North Carolina statute, you are permitted to keep a renter’s security deposit for any of the following reasons:

  • Late fees (to the extent permitted by law)
  • Court costs
  • Costs of removal and storage of renter’s property after summary ejectment
  • Costs of re-renting the premises after a breach by the tenant
  • Unpaid bills that have become a lien on the premises
  • Damages as a result of nonfulfillment of the rental period
  • Damages to the premises
  • Nonpayment of rent or costs for utility services on the premises.

Importantly, the damages to the premises must be considered excessive. These damages are beyond “normal wear and tear”. The following table summarizes the difference between excessive damage and damage due to “normal wear and tear”.

 

Excessive property damage:

Damage due to normal wear and tear:

  • Exceptionally filthy premises (in general) requiring extraordinary cleaning
  • Burned out range heating elements
  • Filthy appliances (such as ovens and refrigerators) requiring extraordinary cleaning
  • Worn lavatory basin
  • Cracked counter tops
  • Small nail holes in walls (from picture hanging)
  • Damaged or chipped countertops
  • Leaking faucets or toilets
  • Loud or unauthorized paint colors
  • Frayed or broken curtain or blind strings
  • Burned spots or stains on carpeting
  • Dirty walls
  • Broken windows
  • Dirty windows
  • Large holes in walls
  • Faded or cracked paint
  • Crayon marks on walls
  • Worn, old or dirty carpeting

 

Maximum NC Security Deposit Amount

Under North Carolina rental law, you are limited to the amount you can charge a tenant for a security deposit. For a month-to-month tenancy, you can ask for the equivalent of one and half months’ rent.

For a tenancy longer than two months, you can charge the equivalent of two months’ rent. Furthermore, if needed, you can also ask for a non-refundable pet deposit. The amount should be reasonable

 

Requirements for Security Deposit Receipt

After receiving their deposit, you have 30 days to notify the renter. You must indicate in the notice where you have stored the deposit.

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Storing a Tenant’s Security Deposit

In North Carolina, you have two options when it comes to storing a renter’s security deposit. One way of storing the deposit is through a bond. The insurance company storing the bond must have a business license in the state.

Another way of storing the deposit is through a trust account. Similarly, the financial institution with the account must be located in North Carolina. The financial institution must be insured and licensed.

 

A Walk-Through Inspection

A walk-through inspection helps document excessive property damage. If there are any, you have a right to make appropriate deductions from the tenant’s deposit. In North Carolina, a walk-through inspection is not necessary.

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Returning a Tenant’s Security Deposit

After the tenancy expires, you have 30 days to return the tenant’s security deposit. If you miscalculate the deductions, North Carolina’s landlord-tenant law gives you an additional 30 days to return it.

Even with the additional 30 days, you are still required to immediately give the renter an itemized list of the deductions after they move out.

Security deposits oftentimes are a source of conflict between landlords and tenants. A tenant may sue even the most meticulous landlord over the return of their security deposit.

To lessen the likelihood of disagreements over deposits here is what you should do:

  • Prepare a move-out letter. In the letter, make sure to:
    • State how you want the premises returned. Specifically, talk about how you want window coverings, appliances, and floors to look like.
    • Describe your procedures for the inspection.
    • Outline the deductions that you have a right to charge them for excessive damage.
    • Ask them for their mailing address and ask them to return keys.
    • Mention how and when you’ll send them the deposit amount.
  • Perform a move-out inspection. Once the renter vacates, you need to thoroughly check the property’s condition. Since a walk-through inspection isn’t necessary for North Carolina, most landlords simply do it themselves.

However, if possible, it’s best to do it together with the tenant. This may help prevent a lot of confusion. The renter may assume they left the premises in excellent condition, but you may disagree.

Ideally, you should have a move-in checklist to reference. The checklist will help you check for any damages resulting from the tenant’s carelessness of negligence.

    During the move-out inspection, check for things such as:

    • Missing blinds
    • Missing carbon monoxide detectors or smoke detectors
    • Burnt or missing light bulbs
    • Fleas and other evidence of bugs
    • Holes in doors or walls
    • Evidence of smoking or of pets
    • Strange odors
    • Unapproved alterations to the unit

Importantly, deductions to the renter’s security deposit amount can only be made if the damage is beyond normal wear and tear. For others, they are just for general upkeep.

  • Make an itemized deductions’ statement. After the move-out inspection, prepare an itemized deductions’ list if any. Under the lease or rental agreement, you can make deductions for back rent, repairs, cleaning, or other monetary commitments.

The list should also contain the costs needed to repair the damage. For example, missing door handles – $150. If you have already done the repair work, make sure to attach the receipts.

If not satisfied with the deductions made, renters may sue you in a small claims court. In North Carolina, the amounts sought shouldn’t exceed $5,000.

This generally results when you’ve failed to return the deposit on time. In such a case, if the renter sues and is successful, you may incur hefty penalties. Aside from settling the renter’s court costs, you may be forced to return the full security deposit to them.

    Avoid the court at all costs. Look for a mediation service if need be. If all fails, come prepared for the hearing. Remember to have the following:

    • One or two witnesses
    • The itemized deposit deductions you sent the tenant
    • Evidence of any repair work done
    • Inventories for move-in and move-out
    • Copies of any correspondence between you and the tenant
    • A copy of a signed lease or rental agreement

 

Change in Property Ownership

When the property changes hands, landlords must do either of the following within thirty days:

  • Return all or portion of the security deposit to the tenant. If returning a portion, the landlord must include an itemized list of the deductions alongside the deposit.
  • Transfer all or portion of the security deposit to the new owner. Next, you must notify the tenant in writing of the same via mail. The notice must also mention the new owner’s address and name.

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With these tips, you will now be able to minimize tenant issues arising from security deposits. If you have more questions, consider hiring the services of a competent North Carolina attorney.

 

Posted by: dawsonpropertymgt on May 24, 2018
Posted in: Uncategorized