legal Issues
HOW MUCH SECURITY IS THERE IN THAT DEPOSIT? By Brownlee Whitlow & Praet, PLLC
In all landlord-tenant matters, other than non-payment of rent, the most litigated issue is probably security deposits. The security deposit rules are fairly basic, but property managers often become ensnared in the related process. We will start at the beginning and try to point out more common potential pitfalls along the way, but will not be able to touch on every aspect of the NC Security Deposit Act. How much can we collect? Statute: The security deposit shall not exceed an amount equal to two weeks’ rent if a tenancy is week to week, one and one-half months’ rent if a tenancy is month to month, and two months’ rent for terms greater than month to month. Comment: This gets more confusing when you look try to figure out exactly what is “security deposit”. Unfortunately, the law is not quite as clear on this point. We know that it is not a “pet deposit” and that a landlord may charge a reasonable, nonrefundable fee for pets kept by the tenant on the premises. Any other fees held on behalf of a resident or that may be credited back at any time to the resident may be included in calculating the amount of the security deposit, including a deposit of the last month’s rent since this amount must be held in escrow on behalf of the resident. Where can I keep the deposit? Statute: Security deposits from the tenant in residential dwelling units
shall be deposited in a trust account with a licensed and federally insured depository institution or a trust institution authorized to do business in this State.
completed within 30 days, the landlord must provide the tenant with an interim accounting, followed by a final accounting within 60 days after the termination of the tenancy.
Comment: There are some instances where a landlord may post a bond, but those are rarely used. This becomes confusing when viewed against the North Carolina Real Estate Commission requirements for escrow funds, which no longer require that funds be held in a North Carolina institution. In this case, the Security Deposit Acts trumps the Real Estate Commission regulations and the money will be required to be placed in a North Carolina institution.
What constitutes the termination of the tenancy can sometimes be a source of confusion. In some instances, a tenant will surrender possession of the home before the lease term has expired. Unless the landlord agrees to an early termination of the lease, generally, the tenancy should not terminate until the expiration of the originally agreed-upon lease term or the home is re-rented, but the wrong judge or magistrate could take a different view.
When can I apply the funds to money owed? Statute: Upon termination of the tenancy, money held by the landlord as security may be applied as permitted in G.S. 42-51 or, if not so applied, shall be refunded to the tenant. Comment: Timing of taking the security deposit can be an issue. As emphasized above, it can’t be touched until the termination of the tenancy. The law states that the landlord has 30 days after the termination of the tenancy either to apply the security deposit or to refund it to the tenant. At the end of the 30 days, the landlord must provide the tenant with a written itemization of any damages, together with the balance of the security deposit. If the landlord’s assessment cannot be the ApartMentor | January–March 2019 16
What deductions can I make? Statute: Security deposits for residential dwelling units shall be permitted only for the following: (1) The tenant’s possible nonpayment of rent and costs for water or sewer services provided pursuant to G.S. 62-110(g) and electric service pursuant to G.S. 62-110(h). (2) Damage to the premises, including damage to or destruction of smoke alarms or carbon monoxide alarms. (3) Damages as the result of the nonfulfillment of the rental period, except where the tenant terminated the rental agreement under G.S. 42-45, G.S. 42-45.1, or because the tenant was forced to leave the property because of the landlord’s violation of Article 2A of Chapter 42 of the General Statutes or was constructively evicted by the landlord’s violation of G.S. 42-42(a).
