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Contents
This article provides general information and is not legal advice. For accuracy and specific guidance on landlord-tenant laws, consult an attorney before making any decisions or taking action.
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According to the North Carolina Landlord Tenant Act, landlords have the legal authority to request and collect security deposits from a tenant. For landlords, these deposits act as a safety net in scenarios where tenants fail to fulfill their lease obligations, cause damage to the property, or breach the lease agreement.
However, state laws govern the collection, utilization, and return of security deposits in North Carolina. These legislations are clearly outlined in the North Carolina Tenant Security Deposit Act. It’s essential that landlords and tenants learn, understand, and adhere to these laws to ensure a smoother leasing experience.
This article covers key aspects of North Carolina security deposit laws, such as maximum allowable amounts, deposit returns, and allowable security deposit deductions.
North Carolina security deposit laws strictly limit the maximum amount a landlord can charge as a security deposit depending on the duration of the rental agreement.
Below is an overview of the maximum security deposit amount in North Carolina, as per NCGS 42-51:
It's important to note that these regulations do not apply to landlords renting out individual rooms.
Landlords in North Carolina are permitted to charge reasonable pet deposits. However, tenants who have service animals due to disabilities are exempt from these fees. Additionally, should a service animal cause any damage to the property, the tenant is responsible for covering those damages.
As we’ve mentioned earlier, landlords in North Carolina have the right to request a security deposit from tenants at the beginning of a lease (NCGS § 42-53). Landlords can choose whichever method suits both parties when it comes to the payment methods for the fees.
Alternatively to managing security deposit collections manually, it’s more efficient to automate this process by using property management software. One good option is the electronic transfer system offered by Landlord Studio—a property management system built by landlords for landlords.
Landlord Studio provides a comprehensive solution for managing security deposits, ensuring compliance and organization throughout the entire process. Collect the security deposit online, keep clear transaction records, message security deposit receipts to your tenant, and securely store essential documents such as receipts and inspection reports.
Important Tip for Landlords: Before collecting security deposits from tenants, it's vital to conduct a move-in inspection of the rental property alongside the tenant. This step allows both parties to assess and document the property's condition at the start of the lease, helping to prevent potential disputes over damages later on.
Several provisions in North Carolina laws allow landlords to deduct or withhold certain parts of the security deposit if certain conditions are met. According to NCGS § 42-51, these deductions can be made when a lease concludes or is terminated for valid reasons.
Here are some common situations in which landlords may retain part or all of a tenant's security deposit:
Landlords can deduct costs for significant damage beyond normal wear and tear. This includes issues like broken tiles, holes in walls, unauthorized paint colors, and any other damages that require repair.
If a tenant abandons the rental unit, landlords may deduct from the security deposit to recover lost rental income during the vacancy period.
In cases where tenants fail to pay their rent, landlords can use part or all of the security deposit to cover the outstanding amount.
If a tenant leaves the property in an unsatisfactory condition, landlords are entitled to deduct cleaning expenses from the security deposit. It's important to note that this does not apply to normal wear and tear.
Should tenants neglect to pay utility bills for which they are responsible, landlords can deduct the necessary amounts from their security deposits to settle these unpaid charges.
In North Carolina, landlords are required to return a tenant's security deposit within 30 days after the lease ends (NCGS § 42-52). If the landlord intends to deduct any damages from this deposit, they must provide a written, itemized list of these deductions. This list should be sent either via first-class mail or delivered in person.
It's important to note that if a landlord fails to prepare this itemized list, they cannot withhold any portion of the tenant's security deposit.
The only exception to this rule occurs when the landlord is unable to reasonably determine the cost of repairs. In such cases, they must send an interim list of deductions within the initial 30 days and then provide a final accounting of the deposit within 60 days.
As per NCGS § 42-55, If a landlord does not return the security deposit within the specified timeframe, they risk being sued by the tenant. Additionally, they will lose all rights to retain any part of the security deposit and may be required to pay back the full amount, along with any damages and attorney fees incurred.
However, if it’s the case of the landlord not knowing the tenant's new address, they are obligated to hold the security deposit for at least six months. After this period, the deposit is considered forfeited by the tenant.
In North Carolina, landlords have two primary options for managing security deposits as per NCGS § 42-50:
Landlords may place the security deposit in a trust account, which must be established at a state or federally insured institution. If the landlord opts to provide a bond for the security deposit, they are permitted to hold it in a trust account located outside of North Carolina.
Alternatively, landlords can secure a surety bond from an insurance company licensed in North Carolina. This bond must equal the amount of the original security deposit. If the insurance company is not licensed or operates outside the state, this option is not permissible.
Regardless of the chosen method, landlords are required to inform tenants within 30 days about the name and address of the institution holding their security deposits. If a bond is used, the landlord must also disclose the name of the insurance company involved.
North Carolina law does not mandate that landlords provide tenants with a receipt for their security deposit. However, both parties should maintain clear records of any transactions related to the deposit.
According to the IRS specifications, security deposits are not classified as income since landlords are obligated to return them. However, they may need to report them as taxable income if they choose to retain any portion of the deposit once the lease has ended.
Here are some of the scenarios where landlords might be obligated to report security deposits in their tax fillings to comply with IRS guidelines:
The most important takeaway for landlords is the maximum allowable amounts, the necessity of conducting thorough move-in inspections, and the obligation to return deposits within 30 days. We can’t stress enough how important it is for landlords to understand these laws to ensure compliance, protect their rights, and uphold tenant protections.
If you looking to manage your security deposits effectively while adhering to tax laws, try using property management tools like Landlord Studio.
For further information about North Carolina rental-related laws, read our article titled “North Carolina Landlord Tenant Laws” Additionally, you can connect with local housing authorities or seek advice from legal professionals.
Landlords in North Carolina may deduct from the security deposit for the following reasons:
Yes, landlords can apply the security deposit towards last month's rent if both parties agree to this arrangement. While this practice is not common, it is legally permissible to ensure that landlords receive any outstanding payments.
Yes, landlords can impose cleaning fees, provided these charges are specified in the original rental agreement. If not included in the agreement, landlords cannot later charge these fees.
