Do you own a property in North Carolina? Understanding the state’s security deposit laws could help protect your rental investment!

Security deposits are important to protect landlords from possible losses in case tenants don’t adhere to the terms of the lease agreement and cause excessive property damage. As a landlord you have a right, under landlord-tenant laws, to ask for one, but you need to ensure that you follow the correct legal procedure every step of the way.

To learn about security deposit law in North Carolina, keep reading!

Advantages to Asking for a Security Deposit

As a landlord, there are many advantages to collecting a security deposit from your tenant, including:

  • Help cover unpaid bills upon move-out - If utilities are the tenant's responsibility, the security deposit can be used to cover any unpaid bills when they move out of the property.
  • Help cover unpaid rent - Non-payment of rent is among the most common issues experienced by landlords. Fortunately, landlords can deduct any unpaid rent from the tenant’s security deposit.
  • Help cover damages to the property - Landlords can use the deposit to cover property damage that goes beyond that of normal wear and tear.
  • Help cover legal fees - In case the landlord needs to file an eviction case against the tenant due to non-payment of rent or other lease violations, the landlord can deduct the cost of court fees and eviction fees from the security deposit.

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What You Need to Know About North Carolina’s Security Deposit Law

Security Deposit Limits

Many states have limits on how much a landlord can charge for a security deposit. In the state of North Carolina, the maximum limits for a security deposit depend on the length of the lease or rental rental agreement:

  • Weekly leases - Landlords can charge a security deposit equivalent to two weeks’ rent.
  • Monthly leases - Landlords can charge a security deposit equivalent to one and a half months’ rent.
  • Longer than a monthly lease period - Landlords can charge up to two months’ rent as a security deposit.

Nonrefundable Fees

For tenants with pets, landlords are allowed to charge a nonrefundable but reasonable fee as a pet deposit. However, renters with disabilities who need service animals should not be required to pay a pet deposit.

The Federal Fair Housing Act states that rental property owners and others in the real estate industry have to allow renter with emotional support or service animals to gain equal access to housing opportunities. But in case the service animal causes property damage, the tenant should pay for the damages.

Storing a Tenants Deposit

In North Carolina, landlords have two options when storing a tenants security deposit. They either use:

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  • Trust accounts - North Carolina landlords can put the tenant’s deposit in a trust account in any federally and licensed insured trust institution or bank in the state. A landlord may place the deposit in an out-of-state trust account in the event that the landlord gives the renter a bond in the amount of the deposit.
  • Bonds - Landlords may choose to post a bond from any North Carolina licensed insurance company, which must be equal to the amount of the deposit the landlord is safekeeping for the renter.

Written Notice After Receipt of a Security Deposit

North Carolina landlords are required to inform the tenant within 30 days of the address and name of the financial institution or insurance company where the security deposit is held. However, they are not required to provide a receipt to the tenants for the security deposit.

Reasons for Withholding a North Carolina Tenant’s Security Deposit

In the state of North Carolina, landlords must only use the deposit once the tenancy has come to an end or has been prematurely terminated. North Carolina landlords can only use the security deposits to cover the following:

  • Unpaid bills - This includes rent, water, utilities, sewer services, electricity, and other bills.
  • Damage to the rental unit - This includes any fixtures and appliances on the property, as well as carbon monoxide and smoke alarms alarms.

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  • Loss of income - This refers to damages that come from the nonfulfillment of the rental period.
  • Costs of re-renting the premises - If the tenant breaks the lease early, landlords can charge the cost of re-renting.
  • Costs of storing or removing tenant’s leftover property - If the tenant left any personal belongings in the unit, the landlord could charge the storage or removal costs from the security deposit.
  • Legal fees - In case of a lawsuit, landlords can charge the court costs, including eviction fees and valid late payment.

Refunding the Security Deposit

Once the tenant leaves, landlords have 30 days to return all or part of the tenant’s deposit. If any deductions are made, landlords must provide an itemized, written list of them, which must be delivered or mailed to the tenant with the remaining security deposit.

Change in the Property’s Ownership

If the property changes ownership, the outgoing landlord has two options:

  • Transfer the portion of the remaining deposit after making the allowed deductions to the new owner. The landlord should notify the tenant of the transfer of ownership, including the new owner’s name, contact details, and address. The new owner will now be responsible for the tenant’s security deposit.
  • Return the remaining portion of the security deposit after making any allowable deductions.

Bottom Line

By understanding a following the states security deposit laws, you can protect your investment property.

If you have specific questions or need help managing your rentals, you can seek out a knowledgeable property management company. The team at House In Order Property Management has the skills and local connections to effectively manage your rental properties. Please contact us at 828-484-1571 to learn more about our management services!

Disclaimer: This blog should not be used as a substitute for legal advice from a licensed attorney in your state. Laws frequently change, and this post might not be updated at the time of your reading.