North Carolina security deposit rules: limits, return deadline and deductions

The 30-day deadline and the 60-day final accounting

Section 42-52 starts the clock when two things have happened: the tenancy has ended and possession of the premises has been delivered to the landlord. No later than 30 days after that, the landlord itemizes any damage in writing and mails or delivers it to the tenant, together with the balance of the deposit. A tenancy that ends with keys returned on June 30 puts the deadline at July 30.

The statute allows more time in one case. If the extent of the landlord’s claim against the deposit can’t be determined within 30 days, the landlord provides an interim accounting by day 30 and a final accounting within 60 days. In the June 30 example, the final accounting is due by August 29.

The section says “mail or deliver” and names no class of mail. Unlike some states, it doesn’t make the refund wait for a forwarding address. It has its own rule for a tenant whose address is unknown.

Itemized damage and balance

In writing, mailed or delivered to the tenant no later than 30 days after termination of the tenancy and delivery of possession of the premises to the landlord. N.C. Gen. Stat. § 42-52

Claim can’t be determined in 30 days

An interim accounting no later than day 30, and a final accounting within 60 days. Both periods run from the same date: termination of the tenancy and delivery of possession. N.C. Gen. Stat. § 42-52

Tenant’s address unknown

The landlord applies the deposit as § 42-51 permits after a period of 30 days and holds the balance for collection by the tenant for at least six months. N.C. Gen. Stat. § 42-52

How large the deposit can be

North Carolina ties the limit to the length of the tenancy, not to a dollar figure. The longer the tenancy, the larger the deposit the statute allows.

Example with rent of $1,200 a month: on a month-to-month tenancy the limit is one and a half months’ rent, $1,800. On a one-year lease the limit is two months’ rent, $2,400. A week-to-week tenancy at $300 a week has a limit of two weeks’ rent, $600.

Week to week

Two weeks’ rent. N.C. Gen. Stat. § 42-51(b)

Month to month

One and one-half months’ rent. N.C. Gen. Stat. § 42-51(b)

Terms greater than month to month

Two months’ rent. N.C. Gen. Stat. § 42-51(b)

Pets

The landlord may charge a reasonable, nonrefundable fee for pets kept by the tenant on the premises. The statute sets no dollar amount for the pet fee. N.C. Gen. Stat. § 42-53

Where the deposit is kept, and the 30-day notice

The Act gives the landlord two choices. The deposit goes into a trust account with a licensed and federally insured depository institution or a trust institution authorized to do business in North Carolina, or the landlord furnishes a bond from an insurance company licensed to do business in the state.

Either way, the tenant is told where the money is. Within 30 days after the beginning of the lease term, the landlord or the landlord’s agent notifies the tenant of the name and address of the bank or institution where the deposit is currently located, or the name of the insurance company providing the bond. A lease that begins on March 1 puts that notice date at March 31.

The Act says nothing about interest. It doesn’t require the landlord to pay the tenant interest on the deposit.

Trust account

With a licensed and federally insured depository institution or a trust institution authorized to do business in North Carolina. N.C. Gen. Stat. § 42-50

Bond instead

At the landlord’s option, a bond from an insurance company licensed to do business in North Carolina. N.C. Gen. Stat. § 42-50

Account outside North Carolina

Not allowed unless the landlord provides the tenant with an adequate bond in the amount of the deposits. N.C. Gen. Stat. § 42-50

Notice to the tenant

Within 30 days after the beginning of the lease term: the name and address of the bank or institution where the deposit is currently located, or the name of the insurance company providing the bond. N.C. Gen. Stat. § 42-50

Interest

The statute doesn’t require it. N.C. Gen. Stat. § 42-50 to 42-56

What the deposit can be used for

Section 42-51(a) lists eight permitted uses and allows no others. When the tenancy ends, the deposit is applied to those uses or refunded.

Two limits sit on top of the list. The landlord may not withhold as damages any part of the deposit for conditions that are due to normal wear and tear, and may not retain an amount that exceeds the landlord’s actual damages.

Example: on an $1,800 deposit with $250 to repair a broken door and $150 of unpaid rent, the itemization shows both lines, $400 in total, and the balance returned is $1,400.

Unpaid rent and utilities

The tenant’s possible nonpayment of rent, and costs for water, sewer or electric service the landlord provides under G.S. 62-110(g) or (h). N.C. Gen. Stat. § 42-51(a)(1)

Damage

Damage to the premises, including damage to or destruction of smoke alarms or carbon monoxide alarms. N.C. Gen. Stat. § 42-51(a)(2)

Leaving before the rental period ends

Damages as the result of the nonfulfillment of the rental period. Not where the tenant ended the agreement under G.S. 42-45 or 42-45.1, was forced to leave by the landlord’s violation of Article 2A of Chapter 42, or was constructively evicted by the landlord’s violation of G.S. 42-42(a). N.C. Gen. Stat. § 42-51(a)(3)

Re-renting after a breach

The costs of re-renting the premises after breach by the tenant, including reasonable fees or commissions paid to a licensed real estate broker. N.C. Gen. Stat. § 42-51(a)(5)

Other listed uses

Unpaid bills that become a lien against the property due to the tenant’s occupancy, the costs of removing and storing the tenant’s property after a summary ejectment proceeding, court costs, and any fee permitted by G.S. 42-46. N.C. Gen. Stat. § 42-51(a)(4), (6), (7), (8)

Normal wear and tear

No part of the deposit may be withheld as damages for it. The landlord also may not retain an amount that exceeds actual damages. N.C. Gen. Stat. § 42-52

What happens when the Act isn’t followed

Section 42-55 gives the tenant a civil action. If the landlord or the landlord’s successor fails to account for and refund the balance of the deposit as the Act requires, the tenant may sue to require the accounting and recover the balance.

The heavier consequence turns on the word willful. A willful failure to comply with the deposit, bond or notice requirements of the Act voids the landlord’s right to retain any portion of the deposit. Example: a landlord willfully leaves an $1,800 deposit out of a trust account, with no bond, and claims $400 in damage at move-out. Under § 42-55 the right to keep the $400 from the deposit is void, so the full $1,800 goes back.

The section names no multiple of the deposit as a penalty. The tenant may also recover damages resulting from the landlord’s noncompliance, and on a finding of willful noncompliance the court may award attorney’s fees.

No accounting or refund

The tenant may institute a civil action to require the accounting of and the recovery of the balance of the deposit. N.C. Gen. Stat. § 42-55

Willful failure on deposit, bond or notice requirements

Voids the landlord’s right to retain any portion of the tenant’s security deposit. N.C. Gen. Stat. § 42-55

Damages

The tenant may recover damages resulting from noncompliance by the landlord, in addition to other remedies. N.C. Gen. Stat. § 42-55

Attorney’s fees

The court may award them on a finding that the party against whom judgment is rendered was in willful noncompliance with the Act. N.C. Gen. Stat. § 42-55

A sale of the property, and rentals this page doesn’t cover

When the landlord’s interest in the unit ends, whether by sale, assignment, death, appointment of a receiver or otherwise, the landlord or agent has 30 days to do one of two things: transfer what remains of the deposit to the successor and notify the tenant by mail of the transfer and the new owner’s name and address, or return what remains to the tenant. Either one relieves the former landlord of further liability for the deposit.

The Act applies to persons, firms and corporations in the business of renting or managing residential dwelling units on a weekly, monthly or annual basis, and it excludes single rooms. Commercial leases are outside it.

Subsidized housing programs can add deposit rules on top of state law, and cities or counties can add rules of their own.

Change of owner

Within 30 days, transfer the remaining deposit to the successor and notify the tenant by mail of the transfer and the transferee’s name and address, or return the remaining deposit to the tenant. N.C. Gen. Stat. § 42-54

Who the Act applies to

All persons, firms or corporations engaged in the business of renting or managing residential dwelling units, excluding single rooms, on a weekly, monthly or annual basis. N.C. Gen. Stat. § 42-56