Each year, hundreds of thousands of North Carolinians
rent houses, apartments, mobile homes, and other dwellings
as their residences. For
the “first-time tenant” – and even more “veteran” renters
– this can be a confusing and somewhat unsettling experience.
As a tenant or future tenant, the more you know about
the process of renting residential real estate, the better
you will be able to look out after your interests and carry
out your responsibilities under your rental agreement. This booklet addresses an important aspect of
the rental process which generates many questions from tenants
– tenant security deposits.
The North Carolina Tenant Security Deposit Act (the
“Act”) sets out the rights and responsibilities of tenants,
landlords and their agents regarding tenant security deposits.
The Act applies to all persons and firms which rent
residential properties (except single rooms) whether on
a weekly, monthly, or annual basis. The Act does not require landlords (or their
agents) to collect security deposits, but they usually do
in order to assure that they will be reimbursed for certain
specified losses caused by tenants. Landlords also frequently use the services of
real estate agents to help them manage and rent their property. These agents must be licensed by the North Carolina
Real Estate Commission and, like the landlord, must comply
with the Tenant Security Deposit Act as well as the N.C.
Real Estate License Law and various rules adopted by the
Real Estate Commission when renting the owners’ property.
How much
security deposit can I be charged?
Can my landlord charge me a “pet fee”?
What happens to my security deposit while I’m a tenant? And what happens to it once my rental term is
over? These are some
of the questions that this booklet attempts to answer.
Although this information focuses on security deposits
from your perspective as a tenant, it should also be useful
to landlords, property managers and rental agents.
Read this
booklet carefully! Then,
if you still have questions about tenant security deposits,
you are encouraged to contact your private attorney or call
the Information Section of the N.C. Real Estate Commission’s
Legal Division (919/875-3700).
Q:
How much security deposit can a landlord charge?
If your agreement with the landlord
is to rent his property on a week-to-week basis, your deposit
may not exceed the equivalent of two weeks’ rent.
If you’re renting on a month-to-month basis, your
deposit cannot be more than 1 1/2 months’ rent.
And, if your rental period is greater than month-to-month,
your deposit cannot be more than two months’ rent.
Q:
Can my landlord charge me a “pet fee”?
Yes.
In addition to the security deposit, your landlord
may also charge you a non-refundable fee if you plan to
keep a pet in his property or on the grounds.
The “pet fee” can be any “reasonable” amount that
the landlord wishes to charge. If your pet damages the property, the landlord
may keep the amount of the pet fee and security deposit
necessary to repair the damage.
Q:
What happens to my security deposit while I’m a tenant?
To assure that your security deposit is safe during
the period of your tenancy, State law requires that it be
kept in a “trust account.”
A trust account is simply a bank account that does
not contain any of the landlord’s personal funds. If a real estate agent is managing the property,
the agent’s trust account checks, deposit slips and bank
statements must contain the words “trust account” or “escrow
account.” The trust account must be maintained in a licensed
and insured North Carolina bank or savings and loan institution.
Within 30 days following the beginning of your lease term,
the landlord or his agent must notify you in writing
where your security deposit has been placed (typically,
this notification is given in the lease), and if your security
deposit is moved to a different bank or savings and loan,
you must be notified of the new location.
Q:
Are there any exceptions to the requirement that my security
deposit be placed in a trust account?
Yes, there is one exception. If the owner is managing his own property (or
the property is being managed by an agent who has agreed
for the owner to hold the deposits), the owner may post
a bond to cover the security deposits. In such case, the landlord must (1) notify you
and the other tenants of the name of the insurance company
providing the bond; (2) purchase the bond from an insurance
company licensed to do business in North Carolina; (3) name
you and the other tenants as payees under the bond; and
(4) assure that the amount of the bond is sufficient to
cover all security deposits collected. [Note: It is difficult for landlords with multiple
rental units to maintain the required minimum bond amount
because, with tenants constantly moving in and out, the
minimum security deposit balance changes from day to day.
Consequently, most landlords choose to place security
deposits in a trust account rather than purchase a bond.]
Q:
Can my security deposit be placed in an interest-bearing
account?
Yes, under certain conditions. If a real estate agent is managing property
for the owner, he may place your deposit in an interest-bearing
account if he has your written permission and the written
permission of the owner. If your lease authorizes the agent to place
your security deposit in an interest-bearing account, the
authorization in the lease must be stated in a clear and
conspicuous manner. The interest may be paid to you, to the landlord,
or to the agent, depending upon your agreement with the
landlord.
Q:
What will happen to my security deposit at the end of my
lease term?
If you stay for the entire lease term and you have paid
all rent due, the landlord (or agent) may deduct from your
security deposit only the actual cost of repairing any damage
which you have done to his property. He
cannot charge you for damage caused by “ordinary wear and
tear.” What
constitutes “ordinary wear and tear” must be determined
on a case-by-case basis.
For example, if you are the most recent tenant in
the property, the landlord cannot charge you to replace
such items as carpet, plumbing and appliances which need
replacement because they are old and worn out.
In fact, you cannot be charged for even contributing
to the normal wear and tear of such items.
On the other hand, if you caused the item to wear
out because of your mistreatment of it, you may be charged
for the amount of unusual wear which you caused (but not
the entire cost of replacement).
Ordinarily, costs for routine cleaning and maintenance
(painting, carpet cleaning, etc.) may not be deducted from
your security deposit. However,
if you leave the property so filthy that unusual or extraordinary
measures are necessary to clean or restore the premises,
the landlord may deduct the cost of such cleaning from your
security deposit.
Q:
What will happen to my security deposit if I vacate the
property before the end of my lease?
In addition to any physical damage which you may have
caused to his property, the landlord may also deduct from
your security deposit his actual damages caused by your
moving out of his property before the end of your lease
term; however, he may not charge you a “termination fee”
or impose any other penalty or forfeiture of deposit for
your early termination. For example, your rent is $600 per month and
you move out of the landlord’s property two months before
the end of your lease. If
it takes the landlord (using his best efforts) one month
to re-rent the property, he may deduct $600 from your security
deposit as lost rent for the period during which his property
was vacant.
Q:
What will happen to my security deposit if, for some reason,
I am unable to pay my rent?
If you fail to fulfill your obligations under the lease
(including your obligation to pay rent), the landlord or
his agent may evict you from his property.
(The court proceeding is known as “summary ejectment.”)
In addition to having you removed from his property,
the landlord (or agent) may recover from you any unpaid
rent and, of course, the cost of repairing any physical
damage which you may have caused to his property - but not
damage due to ordinary wear and tear.
In addition, if you leave behind any of your personal
property (furniture, clothing, etc.), the landlord may also
recover from you the cost of storing your property.
If your security deposit will not cover the landlord’s
damages for unpaid rent, physical damage to his property,
and storage of your personal property, you will be liable
for payment of any remaining costs.
Q:
Is there a deadline by which the landlord
or agent must return my security deposit?
Within 30 days after the termination of your tenancy,
the landlord or agent must send you either a full refund
of your deposit or a written itemized accounting of any
deductions along with any remaining refund amount.
Where the full amount of damage cannot be determined
within 30 days, the landlord or agent may send you a written
interim accounting of deductions claimed, followed by a
final accounting no later than 60 days following the end
of the tenancy. So, it is important to give your landlord or
agent a full forwarding address.
If you cannot be located, the landlord or agent must
hold for at least six months in his or her trust account
the amount to be refunded to you. If the landlord or agent fails to refund your deposit or make
the required accounting, you can sue for recovery of the
deposit and reasonable attorney fees.
The failure to make the accounting as required under
the Act is a forfeiture of the landlord’s right to retain
any portion of the deposit.
Q:
What will happen to my security deposit if the ownership
or management of the property that I rent is transferred
to someone else?
If the landlord who collected
your security deposit transfers ownership of his property
to someone else during the term of your lease, he must either
refund your security deposit to you (after making any allowable
deductions), or transfer your deposit to the new owner (after
making any allowable deductions) and notify you in writing
of the new owner’s name and address.
In either case, your deposit must be refunded or
notice given to you of the new owner’s name and address within thirty days of the transfer. Likewise, if you have paid your security
deposit to the landlord’s agent and the agent discontinues
managing the property during the term of your lease, the
agent must either transfer your deposit to the landlord/owner
or, with the owner’s permission, transfer your deposit to
the new manager. In
either case, the agent to whom you paid your security deposit
must notify you of the new location of your deposit and,
if your deposit is being transferred to the owner, advise
the landlord of his or her responsibilities to you under
the Tenant Security Deposit Act (NC Gen. Stat. § 42-50 et
seq.).
