Landlord-Tenant Basics Part I: Security Deposit Disputes

The number one priority for landlords should be generating profit, not fighting with tenants.  As such, it is vital for residential and commercial landlords alike to know and comply with the laws governing their relationships with tenants so as to avoid unnecessary, and often costly, conflicts.  The security deposit, which is intended to protect landlords against damage to the rental property, is a common source of conflict among lessors and lessees.  Understanding the Tenant Security Deposit Act can serve to avoid conflict while still insuring property owners against any damages caused by an unruly tenant.

What is the Tenant Security Deposit Act?

The Act applies to residential landlords and is codified in the North Carolina General Statutes.  It governs 1) how much a residential landlord can charge tenants, 2) permitted uses of the deposit, and 3) what duties the landlord owes its tenants regarding the security deposit.

How much can I charge?

The Act only permits a residential landlord to charge an amount equivalent to two weeks’ rent if the tenancy is week-to-week, one and a half months’ rent if the tenancy is month-to-month, and two months’ rent for any terms greater than month-to-month.

What can I do with the deposit?

The Act allows residential landlords to use the security deposit for specific purposes:

  • Reimbursement for nonpayment of rent and costs for water, sewer, or electrical services;
  • Repairing any damage to the premises;
  • Reimbursement for damages incurred due to nonfulfillment of the rental period;
  • Satisfying unpaid bills that become a lien against the property as a result of the tenant’s occupancy;
  • Defraying the costs of re-renting the premises after a breach by the tenant, including rental fees or commissions paid by the landlord to a real estate broker;
  • Defraying the cost of removing and/or storing the tenant’s property after a summary ejectment proceeding;
  • Paying for court costs should litigation arise from the rental agreement; and
  • Covering other costs such as eviction fees.

At the conclusion of the lease, the landlord may apply the security deposit funds for these purposes.  Otherwise, the law requires the landlord to refund the entirety of the deposit to the tenant.   Portions of the security deposit that are not used must be returned to the tenant within 30 days of the expiration of the lease along with an accounting showing what was spent on repairs.  The landlord must itemize in writing any damage to the property and send this to the tenant along with the balance of the deposit.  At the very least, the landlord must provide an interim accounting to the tenant within the 30 days if he or she cannot itemize the damages prior to the expiration of 30 days. At the latest, a landlord must provide a final accounting within 60 days of the termination of the tenancy.

It is important to note that the landlord may not use the security deposit to repair damages caused by normal wear and tear to the property.  Conducting a thorough move-in inspection and maintaining a record of the condition of the property with photographs and notes can limit the possibility of a conflict over what damages the tenant caused as opposed to what conditions evidence typical degeneration.

What happens if I don’t comply?

Tenants are entitled to certain remedies when landlords misuse security deposits.  Tenant remedies may include the following:

  • If the landlord fails to account for and/or refund the security deposit, the tenant may bring a civil suit to recover it. This typically takes the form of a small claims lawsuit, which is tailor-made to be accessible to pro se litigants.
  • If the tenant can show that the landlord acted willfully in failing to comply with the law regarding the refund of the security deposit, the landlord will lose its right to retain any portion of the deposit.
  • In some narrow cases, the tenant can also recover damages resulting from noncompliance by the landlord and upon a finding by a court that the landlord’s failure to comply with the law was willful, court may award attorney’s fees.

The takeaway is simple: Be sure to comply with the law to avoid conflict with tenants and, ultimately, these possible tenant remedies.  It is a good practice to consult with an attorney any time you find yourself doubting whether you are legally permitted to use your security deposit funds.

This blog post does not constitute legal advice and is not intended to create an attorney-client relationship.

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