PROPERTY MANAGEMENT BLOG

Security Deposit Laws in NC

System - Tuesday, April 20, 2021

security deposit laws nc

Although not required by law, many North Carolina landlords require tenants to pay a security deposit before moving into their new home.

The purpose of a security deposit is to provide North Carolina landlords with a safety net against any losses caused by tenants that an insurance company cannot cover.

The security deposit charged by a landlord can address things such as:

  • Excessive damage to the property: Normally, a tenant must return their rented premises in the exact same way they found it (except for normal wear and tear). Sadly, this does not always take place. A tenant may cause excessive property damage, either by accident or through negligence. A landlord will want to protect themselves from this using their security deposit.

  • Lost rent payments due to the tenant abandoning the unit: Property abandonment is a serious violation of the rental agreement. When a tenant signs a lease, they agree to stay in their rented premises for a certain duration of time. So, when this happens, you can cut your losses by making appropriate deductions to their security deposit.

  • Losses in rent payments: Failure by a tenant to pay their rent is a serious violation to the lease agreement. Unfortunately, this is one of the most common problems that landlords in North Carolina experience.  

  • Unpaid utilities after a tenant move out: A tenant must clear all their utilities once they move out of their rental properties. If they don’t, a landlord has the right to make appropriate deductions to their security deposit. 

  • Excessive cleaning costs after a tenant moves out: Tenants must keep their rented premises in clean and sanitary conditions. If they leave your property in a dire state of uncleanliness, you can use part or all of their security deposit to have it cleaned by a professional.

Because collecting, storing, and keeping track of security deposits and navigating security deposit law can be time-consuming. Many landlords in North Carolina enlist the help of an experienced property management company to handle such tasks on their behalf and avoid unnecessary court costs. 

Guide to North Carolina Security Deposit Law

Is there a limit to how much NC landlords can charge their tenants? 

Yes, landlords do have a limit on how much they can charge for a security deposit. The specific limit for the security deposit in North Carolina is dependent upon the lease term. 

For a weekly lease, security deposits in North Carolina can be no more than the combined rent of two weeks. For monthly leases, the maximum a landlord can charge should be the equivalent of one and one half months rent. 

And for leases exceeding one month, North Carolina security deposit limits should be at least the equivalent of two months’ rent. As two months' rent could cover the majority of damages in the rental period.

With that being said, a landlord should be aware that single rooms are exempt from such limits, as well as any other rules on security deposits. 

Can landlords require pet deposits in North Carolina? 

Yes, a landlord can require their tenants to pay a pet deposit prior to renting a property in North Carolina.

pet deposit

While there are no security deposit limits set by law, security deposits in North Carolina must be reasonable. That means it should address only the type of damage that could be caused by a pet.

How should landlords hold their tenants’ security deposits? 

Landlords must store their tenants' security deposit in North Carolina in one of two ways. The first is that you can choose to store it in a trust account

The trust account must be in a licensed and federally insured institution or a trust institution within the state of North Carolina. 

The second option is that you can choose to store the deposit in form of a bond from an insurance company. According to North Carolina laws, the bond should be in the amount of the security deposit, and the financial institution located in the state. 

Once you’ve stored the tenant’s deposit in either a trust account or a bond, you must then notify the tenant. You should do so within 30 days after their lease term begins to avoid a breach of the deposit law. 

What can the landlord use the deposit for?   

North Carolina general statutes dictate a landlord can only use the tenant’s deposit when either the lease has ended or has been broken. Also, when the lease has ended, you can only use it for specific purposes. 

deduction uses

For example, you can use a tenant's security deposit to cover:

  • North Carolina security deposit can be used by a landlord for unpaid bills such as sewer or water services that may be claimed against the unit. 

  • Excessive damages to the property. This is the destruction or deterioration that occurs as a result of a tenant’s action. A landlord should not confuse this with normal wear and tear, which cannot be covered by the renter's security deposit.

  • Costs of storing or removing the tenant’s property after they leave the North Carolina property. 

  • Damages resulting from the nonfulfillment of the rental agreement. 

  • Costs of re-renting the unit after a tenant leaves. 

Can a tenant use the security as last month’s rent? 

It isn't common, as normally a security deposit serves a different purpose than rent. 

However, if both the landlord and tenant agree to include such a statement in the lease agreement, a tenant's security deposit can be used as the last month's rent.

Are tenants in North Carolina entitled to a walk-through inspection? 

This occurs when a tenant moves out of their rented premises at the end of the lease. Both the North Carolina landlord and the tenant can walk through the rental to look for any damages, normal wear and tear, or illegal alterations to the unit. 

walk through inspection

In some states, tenants have a right to be present during the process. However, the opposite is true for tenants in North Carolina. 

When should a landlord return the security deposit back to the tenant? 

You have 30 days to return the security deposit back to the tenant after they move out. If you made any deductions to the deposit in North Carolina, then you must provide your tenant with an itemized list of the same. 

The list of itemized deductions must be in writing and be sent to the tenant alongside the remaining portion of the deposit. 

In the event you don’t have the forwarding address, you must hold on to the deposit for six months. 

If you own multiple properties, it can be tricky to keep track of these deadlines and procedures. You can avoid potential headaches with security deposits by instead choosing to work with a property management company

What happens if you don’t return the security deposit back to the tenant? 

In North Carolina, if you don't return a tenant's security deposit, they can sue you for wrongful withholding. What’s more, Landlords may also forfeit any rights to the deposit if they’re found to have willfully failed to comply with any of the rules. 

Generally, noncompliance to North Carolina security deposit law can make a landlord liable to both the damages incurred by the tenant as well as attorney fees or court costs. 

What happens if the owner decides to sell the property? 

If the landlord transfers property ownership during the lease term, the outgoing landlord will have two options. 

One of the options is to transfer the security deposit to the incoming landlord. You’ll then need to let your tenants know of the same. 

The other option is to return the security deposit amount back to the tenant, minus lawful deductions. 

Disclaimer: For further help regarding security deposits, trust accounts, or any other legal questions, please consider hiring a professional property management company. The information herein is not a substitute for professional legal advice.