The Basics of North Carolina’s Security Deposit Law

Key Takeaways

• Keep security deposits in an approved trust account or use a qualifying bond, and provide the required storage information within the applicable timeframe.
• Document the property's condition at move-in and move-out so any security deposit deductions can be supported with clear records.
• Only make security deposit deductions for costs allowed under North Carolina law and avoid charging for ordinary wear and tear.
• Build lease administration, maintenance, inspections, and deposit procedures around current North Carolina requirements rather than relying on outdated practices.

NC Security Deposit Law: The Basics



When it comes to the security deposit, landlords who rent out property in North Carolina must strictly adhere to the tenants security deposit laws. North Carolina security deposit laws stipulate how landlords should handle a tenant's security deposit.

If a security deposit is handled incorrectly, North Carolina landlords may forfeit their right to keep the tenants deposit, even if they are using it for unpaid bills or rental payment. If you are a landlord who rents out property in North Carolina, Dawson Property Management has a basic guide of the North Carolina security deposit laws you need to know about.

Reasons for Keeping a Tenant's Security Deposit

According to the laws laid down in North Carolina's Security Deposit Act, a North Carolina landlord is permitted to keep a tenants North Carolina security deposit for any of the following reasons related to a rental unit:

• Late rent fees (to the extent permitted by law).
• Court costs.
• Costs of removal and storage of renter's property after summary ejectment.
• Costs to re-rent the premises after a breach by the tenant.
• Unpaid bills that have become a lien on the premises.
• Damages as a result of nonfulfillment of the lease term, including costs associated with breaking the lease early, that is not normal wear and tear.
• Damages to the premises during the rental period beyond normal wear and tear.
• Tenant fails to pay rent or costs for utility services on the premises, and unpaid rent may be deducted from the security deposit.

Importantly, the damages to the North Carolina premises made by tenants must be considered excessive in order to make necessary deductions from the security deposit a tenant paid per North Carolina laws.

Landlords may also charge for excessive cleaning costs after move-out when supported by records. These damages from tenants are beyond “normal wear and tear,” and the entire security deposit cannot be used for normal wear and tear or as last month's rent during the lease term.

The following table summarizes the difference between excessive damage by a tenant and damage due to “normal wear and tear” during a tenants' time living on your property per North Carolina laws.

Maximum NC Security Deposit Amount

Under North Carolina rental law , landlords who rent out commercial property, houses or apartments are limited by tenancy type in the amount they can make a tenant pay for North Carolina security deposits, with caps tied to monthly rent where applicable. For a month-to-month tenancy, North Carolina landlords can ask a tenant for the equivalent of one and one half months rent as a security deposit in North Carolina. For a week to week tenancy, the maximum is two weeks' rent.

According to the North Carolina security deposit laws, for leases longer than a month, a North Carolina landlord can make a tenant pay the equivalent of two months' rent as a security deposit. Furthermore, North Carolina landlords can also charge pet deposits from their tenants, but the amount should be reasonable and state law does not set a separate cap.

Requirements for Security Deposit Receipt

According to North Carolina security deposit laws, after receiving their security deposit, a landlord has 30 days to notify the tenant that they received the security deposit and identify the bank, trust, or bond institution holding it, as these rules require landlords to disclose where the funds are kept.

Per North Carolina security deposit law, a landlord must indicate in the notice where they have stored the tenant's deposit, and sending that notice by certified mail can help document compliance.

Storing a Tenant's Security Deposit

According to the North Carolina law, the law requires a landlord who rents property to use one of two options when it comes to storing a tenant's security deposit. Under the law, one way of storing security deposits is through a bond. The insurance company that the landlord uses to store the security deposits as a bond must have a business license in the state.

Another way of storing security deposits for landlords in North Carolina is through a trust account. Similarly, according to the law written in the North Carolina Tenant Security Deposit Act, landlords must store deposits in a trust account held in a licensed North Carolina bank or similar qualifying institution under the Act.

If a landlord chooses to store the security deposit in a trust account, proper storage of NC security deposits in that account is required for compliance, and a licensed real estate broker managing the property must follow the same rules.

A Walk-Through Inspection

A walk-through inspection helps document excessive property damage to your rental property. If there are any, a landlord has a right to make appropriate security deposit deductions. In North Carolina, a walk-through inspection by the landlord is not necessary.

Returning a Tenant's Security Deposit

In North Carolina, once the lease ends and the tenant leaves, landlords generally have 30 days to return the tenant's security deposit or explain any deductions. If damages cannot be fully determined within that first 30 days, North Carolina's Tenant Security Deposit Act gives them an additional 30 days to complete the final accounting and finalize the return.

Even with the additional 30 days, landlords must provide an itemized list of deductions or an interim accounting within 30 days of lease end when the tenant moves out under the North Carolina security deposit laws.

Tenants should provide a forwarding address, and if none is given, the landlord may hold the remaining portion for 6 months. Security deposits oftentimes are a source of conflict between landlords and tenants. Under the North Carolina Tenant Security Deposit Act, a tenant may sue even the most meticulous landlord over the return of their security deposit.

Lessen the Likelihood of Disagreements over Deposits

Perform a move-out inspection. Once the tenants vacate, landlords need to thoroughly check the property's condition. Since a walk-through inspection isn't necessary for North Carolina, most landlords simply do it themselves. Prepare a move-out letter for the end of the tenant's occupancy.

In the letter, landlords must make sure to:

• State how you want the premises returned. Specifically, talk about how you want window coverings, appliances, and floors to look, and make clear that ordinary cleaning is expected but excessive cleaning costs may be deducted.
• Describe your procedures for the inspection.
• Outline the deductions that you have a right to charge them for excessive damage.
• Ask them for their mailing address and ask them to return keys.
• Mention how and when you'll send them the deposit amount or remind them of the return terms you included in the lease.

However, it's best to do it together with the tenant if possible to help prevent confusion. The tenants may assume they left the premises in excellent condition, but you, the landlord, may disagree.

Willful noncompliance or bad-faith withholding can lead to stronger penalties, including forfeiting the right to retain any portion of the deposit, and tenants may recover up to twice the deposit.

Ideally, landlords should use a move-in checklist to reference. The checklist will guide landlords like you check for any damages resulting from the tenant's carelessness of negligence that will affect deposit returns.

During the exit inspection, landlords should check for things such as:

• Missing blinds.
• Missing carbon monoxide detectors or smoke detectors.
• Burnt or missing light bulbs.
• Fleas and other evidence of bugs.
• Holes in doors or walls.
• Evidence of smoking (tobacco or drug use), or of pets when no pet deposits have been paid.
• Strange odors.
• Unapproved alterations to the unit.

Importantly, deductions to the North Carolina renter's security deposit amount can only be made if the damage is beyond normal wear and tear. For others, they are just for general upkeep and using the security deposit to pay for them would be a violation of the law.

Make an itemized deductions' statement. After the move-out inspection, prepare an itemized deductions' list if any. Under the rental or lease agreement, you can make deductions for back rent, repairs, cleaning fees if the lease authorizes them, or other monetary commitments, and separately charge documented cleaning costs supported by the inspection.

The list should also contain the costs needed to repair. For example, missing door handles – $150. If a landlord has already done the repair work, they should make sure to attach the receipts to the deposit deduction document.

If not satisfied with the deductions from the tenant's deposit made for back rent or repairs, a tenant may take legal actions and sue their landlord in a small claims court. In North Carolina, the amounts sought for security deposit deductions shouldn't exceed $5,000. This generally happens when a landlord fails to return the deposit on time. In such a case, it is the landlord's violation of the law, and the tenant can sue in small claims court for the full deposit, and if successful, you may incur hefty penalties.

Aside from settling the renter's court costs, as the landlord, you may be forced to return the full security deposit to them as directed by the North Carolina Tenant Security Deposit Act. Avoid the court at all costs. Look for a mediation service if need be. If all else fails, come prepared for the hearing. Landlords must remember to have the following:

• One or two witnesses.
• The itemized deposit deductions you sent the tenant including owed rent.
• Evidence of any repair work done.
• Inventories for move-in and out.
• Copies of any correspondence between you and the tenant regarding back rent or repairs.
• A copy of a signed rental or lease agreement detailing deposit terms.

Change in Property Ownership

When the tenant's property changes hands, landlords who rent out property in North Carolina must do either of the following actions with the deposit within thirty days:

• Return all or portion of the security deposit to the tenant. If returning a portion of the deposit, the landlord must include an itemized list of the deductions alongside the deposit.
• Transfer all or portion of the security deposit to the new landlord. Next, you must notify the tenant in writing of the same via mail. The notice must also mention the new landlord's address and name.

In Conclusion

With these tips from Dawson Property Management, landlords who rent out property in North Carolina will now be able to minimize tenant issues arising from security deposits.  If you have more questions, about these security deposit laws, your property, or your rental agreement, consider hiring the services of a competent North Carolina attorney.

Frequently Asked Questions About North Carolina Landlord-Tenant Law

What Should North Carolina Landlords Document Throughout A Tenancy?

Landlords should keep records of the lease, security deposit, property condition, repairs, communications, and financial transactions.

Move-in and move-out photos, repair invoices, receipts, and notices can help support decisions about property damage and security deposit deductions. Consistent documentation also makes property management easier to oversee and provides a clear record if a dispute arises.

How Much Can A Landlord Charge For A Security Deposit In North Carolina?

The state limits residential security deposits based on the tenancy type. The maximum is two weeks' rent for week-to-week tenancies, one and one-half months' rent for month-to-month tenancies, and two months' rent for longer tenancies. Landlords should review current requirements before setting deposit amounts or adding related lease charges.

How Should Landlords Handle Security Deposits During A Tenancy?

Landlords generally must place residential security deposits in an appropriate trust account or provide a qualifying bond. They must also provide required information about where the deposit is being held. Owners should maintain accurate deposit records and review their procedures regularly to help avoid administrative errors.

What Can A North Carolina Landlord Deduct From A Security Deposit?

Permitted deductions may include certain unpaid rent or utilities, property damage, qualifying re-renting costs, court costs, and other expenses allowed by law. Landlords generally cannot deduct for ordinary wear and tear. Owners should document the condition of the property and keep records supporting any deductions.

What Maintenance Responsibilities Should North Carolina Landlords Plan For?

Landlords should maintain rental properties in a fit and habitable condition and address required repairs. Responsibilities can include applicable housing codes, common areas, plumbing, electrical systems, heating, and supplied safety equipment.

A consistent maintenance process helps owners track repair requests, completed work, inspections, and vendor expenses.

How Can A Property Manager Help With North Carolina Landlord-Tenant Requirements?

A full-service property manager can help coordinate leasing, rent collection, maintenance, inspections, financial reporting, and other day-to-day responsibilities.

Dawson Property Management provides residential management services for single-family homes, multi-family units, townhomes, and condos. Owners should confirm the specific services and responsibilities included in their management agreement.

Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.