A Look at NC Security Deposit Law
Security deposit laws play a crucial role in the relationship between landlords and tenants in North Carolina. These laws govern the security of the financial commitment made by tenants when renting a property. In NC, the landlord holds the tenant’s security deposit until the end of the lease or rental period. This sets the stage for how disputes are potentially resolved.
North Carolina’s security deposit laws are contained in N.C. General Statute § 42-50, et. seq.
In North Carolina, the act of paying a security deposit is a prerequisite for obtaining a rental on a property. For example, if a prospective tenant wants to rent a property, that person must pay a security deposit to the landlord . The law does not address incentives paid to induce a lease. For simplicity, I think of incentives paid to induce a lease as "bonus" (i.e., a rent concession). Security deposit and bonus payments are not the same thing.
A security deposit is a payment made to the landlord, usually as an up front deposit, to secure a residential lease. A security of a residential lease is provided for the benefit of the landlord to cover damages arising from the failure of a tenant to perform any of the duties of the lease (such as pay rent through the lease term).
Under North Carolina law, the landlord may only retain a security deposit to cover:
The specific statutory language of the security deposit law should also be consulted.
Acceptable Security Deposit Amounts
North Carolina law limits the amount of security deposit that may be charged to tenants and also requires that it be accounted for properly. A security deposit is considered money held by a landlord for the performance of a rental lease. If the tenant simply decides not to renew the lease for some reason, it is common for the landlord to hold a set portion of the security deposit to keep before releasing the rest of it, assuming no damage was caused or no other obligations defaulted on by the tenant. In North Carolina, a landlord is permitted to charge up to one month’s rent plus 1/9th of the annual rent. For example, if the annual rent is $10,800, the total security deposit can be $1,066.67. Depending on the lease (or if a periodic lease has been permitted), security deposits may be applied differently from tenant to tenant. If the lease is for 6 months or less, landlords may charge only the money for the one month’s rent and may not charge any extra money beyond that. In contrast, if each lease term is 6 months or longer, the one month’s rent portion of the security deposit is calculated considering the entire term length of the lease. For example, if the lease is for one year and the annual rent is $10,800, the security deposit maximum may not exceed $1,066.67. If your lease is for 2 years, the maximum that may be charged is $2,133.34. There are essentially just two different types of leases covered here so it is fairly straightforward. If no mention is made of whether the lease has a term of 6 months or more, then one assumes that it must have a term beyond just 6 months. If we were to say that the landlord in the example were charging 2 months rent, the remaining $533.34 could not be paid out to the tenant until the landlord had filed for an eviction and received a summary ejectment judgment. Any "unused" part of the security deposit must either be returned to the tenant immediately or must be held in a separate bank account for that specific rental property and kept separate from all other money that the landlord has. Whether a landlord holds it in a separate account or returns the unused portion immediately after the lease ends, it depends on the arrangement between the landlord and tenant but the important part is that the unused amount should not be held in a general pool used for other properties (although this is permitted if it is a subsequent lease for the same tenant.) Technical note: "Rent" is defined in N.C.G.S. § 42-50 as either "the periodic rent due and, if the use of privies, furnishings, furnishings or other benefits is included in the rent, such rental value." This amounts to an interpretation of "whatever a tenant pays the landlord for rent" although this definition is often debated by legislators.
Uses for a Security Deposit
A landlord may make deductions from the tenant’s security deposit for the following reasons:
- (1) Unpaid rent.
- (2) The actual cost of repairing damage or the reasonable cost of remedying the failure to perform the tenant’s obligations only to the extent that these costs constitute a deduction from the tenant’s security deposit calculated in accordance with the deductions established by G.S. 42-52(a) in subsection (b) of this section. For purposes of this subdivision, "damage" does not include wear and tear; and "use, appearance, operation, or cleanliness," however expressed, does not include ordinary or normal wear and tear, and no part of the total amount deducted for any single occurrence shall exceed that amount which is permitted by G.S. 42-52(b) for an occurrence of that type,
- (3) The actual cost of the removal of personal property unlawfully on the leased premises; provided, however, that such value shall not exceed the amount that could be collected for rent due as provided in G.S. 42-42(a); or
- (4) The actual cost of remodeling or repairing the dwelling unit in any manner necessary to put the unit into good order and condition when the tenant failed to do so after having made a written agreement with the landlord to make the repairs or alterations or to pay for the remodeling or repair.
How to Return a Security Deposit
If a landlord or property owner decides to keep part or all of the security deposit, the process must be handled in a specific manner. The landlord is required to give notice in writing to the tenant of the disposition of all amounts not returned if no new lease has been entered into. The notice can be delivered in person to the tenant, or sent by first-class mail to the tenant’s last known post office address. If rent is owed, the landlord can deduct this amount from the security deposit without having to send a written notice. If a new lease has been entered into, the provisions of G.S. 42-25.9 through 42-25.11 govern the landlord’s ability to retain a security deposit. In the event that the tenant has given notice in accordance with G.S. 42-14.1 to terminate the rental agreement, the landlord has 30 days from the time the tenant vacates the premises to return any property belonging to the tenant or to give notice of the disposition of the deposit. If a new lease has not been entered, any disposition notice must be hand delivered or mailed via first-class mail to the tenant’s last known address. This notice by the landlord must give an itemized list of every item deposited, and state the name and address of the repository for each item of the deposit not returned.
Allowable deductions:
Late payments of rent
Court costs incurred by the landlord for tenant’s breach of rental agreement
Unpaid rent
Tenant breaches of rental agreement
Eviction costs
Damages
Abandonment
Costs necessary to obtain possession of the apartment
The statute also discusses in detail the documentation that must accompany a written notice of the retention of a security deposit. It is clear that the tenant has more rights under the statute than does the landlord. The landlord is obligated to return the security deposit or provide a notice indicating the reasons why a certain portion is being retained. It is the method of giving notice and the specific requirements for that notice that were the focus of the General Assembly in the 1995 amendments.
Tenant Rights & Landlord Duties
Security deposits in North Carolina are governed by NCGS 42-51 through 42-54, and they passed a law in 2011 that provided additional obligations to landlords with respect to security deposits. This law went into effect October 1, 2011 so it is still relatively new and you should be sure to check with Charlotte NC property management company to see if they stay abreast of all the changes.
Tenant’s Obligations to Pay Security Deposit
The tenant is obligated to pay a security deposit. However, there is a statute of limitations of three years within which a tenant can bring a claim against a landlord concerning the security deposit. This means that if more than three years goes by, the tenant can’t get their security deposit back even if the landlord violated the law.
Landlord Obligations and Penalties
The landlord must put the security deposit into a trust account or trust deed. The landlord must inform the tenant to which institution per NCGS 42-51 and 42-52. According to the North Carolina Attorney General, no matter what institution is used, the tenant must receive written notice, before the landlord receives any money , where the money will be placed.
As of 2011, the landlord has an additional obligation and that is to give the tenant a written notice of the tenant’s liability for damages, NC has created a required notice. NCGS 42-53 requires that when the landlord is holding a security deposit:
The written notice does not have to be given to tenants who are not occupying the residence for 30 days or less (e.g. a vacation rental).
Finally, landlords are now also required to give a written description of the condition of the premises to the tenant prior to the tenant moving in. NCGS 42-52(c) outlines exactly what additional information is necessary.
A landlord can be liable for both statutory and treble damages if they do not comply with the statutes. Statutory damages are twice the amount of the wrongfully retained deposit, or $500, whichever is greater. Treble damages are triple the amount of the security deposit that was wrongfully withheld.
Your best bet to understanding your rights is to go over them with Charlotte NC property manager to get a full explanation of the law and the course of action you will need to take if you do not get your security deposit back.
Commonly Asked Questions
Q: What are common issues a landlord might have when a security deposit is not enough to cover all damages?
A: If the cost of repairing the damage to the property exceeds the security deposit, the landlord may be entitled to sue the tenant for the difference in damages. A common question is whether a tenant should have been provide with an itemized list of damages. While it is best practice for a landlord to provide an itemized estimate or invoice, it is not required. If you are a tenant and believe that you have been overcharged for repairs that you did not cause, you may want to consult with an attorney to discuss your legal options.
Q: What if a landlord sells the house while I am renting?
A: If a landlord sells the house while you are still renting, he or she may assign the lease to another landlord who will be responsible for your security deposit. Even if the lease is silent on the issue, the tenant is entitled to return of the security deposit from either the seller of the property or the new owner. If the new property owner will not return the security deposit, consult with an attorney for further guidance as to your options for recovery.
Recap & Legal Resources
The most important takeaways from this article are that landlords cannot withdraw security deposits (in any amount) from your account without giving you 30 days’ advance notice, and that landlords may not withhold the security deposit to consider potential damages if the tenant paid their security deposit in installments and has vacated the premises prior to their lease term. Although security deposit laws can be complex, the best way to avoid an issue is to document everything in writing .
Tenant Resources:
- North Carolina Attorney General Landlord-Tenant Law Guide
- NC Attorney General General Consumer Information on Security Deposits
- Tickets to Small Claims Court: UNC School of Government
- North Carolina Secretary of State Security Deposit FAQ
- Tenant’s Guide to Security Deposits: NC Justice Center
Landlord Resources:
– Security Deposit FAQ: NC Housing Coalition
– North Carolina Apartment Association Guide on Security Deposits