The Security Deposit: What Landlords Need To Know (Part 1)
Every residential landlord in North Carolina should be familiar with NC General Statute Sections 42-50 to 42-56, titled the “North Carolina Tenant Security Deposit Act.” This act is small and relatively easy to read.
Landlords should know that they are not required to collect security deposits from renters. It is a wise move to collect a security deposit because it assures that the landlord will be reimbursed for certain losses caused by the tenant. However, by receiving a security deposit, landlords must comply with some technical restrictions.
First, the security deposit cannot exceed twice the amount of rent where tenancy is week to week, 1.5 the amount of rent where the tenancy is month to month, and twice the amount of rent where the tenancy is greater than month to month (e.g. 6 month lease or a 1 year lease). As a side note, a pet deposit is not limited to the above restrictions and may be for any amount the landlord finds to be reasonable. If a pet damages the property, the landlord may pull from the security deposit to make repairs and still keep the pet deposit.
Second, a landlord must (1) keep security deposits in a trust account or (2) acquire a bond in the amount of the security deposits from an insurance company licensed to do business in North Carolina. A trust account is simpler to handle and permits the landlord to use a “leave it until its needed” approach. As a side note, a Real Estate Broker may place the security deposits in an interest bearing account, but this is only possible with prior written permission and a designation of who receives the interest. Usually, since interest rates are quite low, it would be more of a hassle to generally use an interest bearing account than a trust account.
Third, once a renter vacates the property, a landlord must either (1) return the full security deposit within 30 days, (2) return a partial security deposit with an itemized bill of repairs or missed rental payments within 30 days, (3) notify the tenant that no security deposit will be returned and the reasons why none will be returned within 30 days. However, if it will take longer than 30 days to establish a final accounting to the tenant, the landlord must provide an “interim accounting” within 30 days and provide a final accounting stating the amount (if any) of security deposit to be returned within 60 days (of tenant vacating the property).
It must be said that failure to comply with the North Carolina Tenant Security Deposit Act may have harsh consequences to the landlord. A most extreme example would be the complete forfeiture of the entire security deposit to the landlord and the landlord being required to pay court costs and the tenant attorney’s fees.
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