North Carolina has a set of specific rules and laws about use of security deposits—these restrictions are laid out in North Carolina General Statute §42-50 through §42-56. Whether you are a landlord or tenant in North Carolina, it is important that you have an understanding of the rules governing security deposits.

Limitations on Collection of NC Security Deposits

As a preliminary matter, there are some restrictions on the amount of the deposit provided to the landlord. In NC, §42-51(b) provides the upper limits of security deposits depending on the length of the tenancy. For a week-to-week tenancy, the security deposit cannot be more than two weeks’ worth of rent. For a month-to-month tenancy, the tenancy cannot be more than one and one-half months’ rent. If the tenancy is longer than month to month, then the security deposit cannot be more than two months’ rent. Be sure that, before you sign your lease (if you are a tenant) or set your security deposit amount (if you are a landlord), the security deposit is not set a statutorily prohibited level.

During the Lease, what can a Landlord do with the Deposit?

In North Carolina, security deposits (in residential tenancy settings) must be deposited in a trust account, held separate from other funds. In the alternative, the landlord can provide the tenant with a bond for these security deposits (which is a rarer approach). This is an oft violated/ignored aspect for landlords who do not regularly service multiple tenancies. There is a further requirement under law that obligates the landlord to notify the tenant of the name and address of the bank where the deposit or bond is held as well.

Once the Lease Term has Expired, What Happens to the Deposit?

After the expiration of the tenancy, the landlord must return the deposit within thirty (30) days. If the landlord keeps any portion of the deposit, the landlord must account for the unreturned portion in writing within the thirty day period. It is possible to provide an interim accounting prior to accounting for the full use of the security deposit under the statute, in the event that repairs to damages occur outside of the thirty-day period. The landlord is only permitted to keep that portion of the security deposit necessary to cover the actual allowable costs. While there still exist some modern leases that include “forfeiture clauses” (where the landlord can keep more than their actual cost), these clauses are unenforceable under the current rules. In other words, a landlord cannot keep the entire security deposit just because there was some damage in the leasehold.

What is an Appropriate Use of a Security Deposit? Can a Security Deposit be Kept to Offset Unpaid Rent?

The statute specifically lays out the permitted uses for security deposit funds:

  1. Nonpayment of rent or costs for water/sewer/electric services on the premises;
  2. Damages to the premises;
  3. Damages as a result of nonfulfillment of the rental period (unless nonfulfillment is the result of Landlord’s breach);
  4. Unpaid bills that have become a lien on the premises;
  5. Costs of re-renting the premises after a breach by the tenant;
  6. Costs of removal and storage of tenant’s property after summary ejectment;
  7. Court costs; and
  8. Late fees (to the extent permitted by law).

Importantly, a landlord may not withhold from the security deposit funds used to pay for normal wear and tear. It is difficult to ascertain, sometimes, the difference between “damages” and “wear and tear”—the NC Attorney General’s office suggests that replacement of door handles, oven heating elements, curtain strings, toilet parts, faucet handles, or electrical switches falls into the purview of wear and tear. More substantial changes, like replacement of window screens/panes, cleaning coffee stains on the carpet, fixing large holes in the wall, or cleaning filthy conditions are the type of repairs that would be appropriate for security deposit use. You can learn more from the NC Attorney General’s Office in their Security Deposit handbook, found here.

What do I Do?!!!

Whether you are a landlord or a tenant, if you find that you have questions about how to handle or recover security deposits, talking to an attorney who is experienced in landlord-tenant disputes can be very helpful. Attorneys at Coltrane Grubbs and Orenstein deal with landlord-tenant disputes on a regular basis and would be glad to guide you through the security deposit protocol in NC. Give our office a call today (336-996-4166) to set up an appointment!