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Overview of Tenant Security Deposits and Landlord Responsibilities for Rental Property Security Deposits

A look at the basics of security deposits, along with helpful advice for landlords to avoid any costly compliance missteps.

Security deposits are a rental topic that often causes confusion with tenants and has the potential to cause costly financial penalties for landlords. Depending on the location of your rental property, the state may impose strict rules on security deposits including the amount landlords can collect and how they can use security deposit funds at the end of a tenant’s lease. In this Landlord’s Rental Guide article, we’ll take a look at the basics of security deposits and provide helpful advice for landlords so they can avoid any costly compliance missteps.

Security Deposit Basics

Landlords collect security deposits to cover damage to the rental property premises beyond normal wear and tear, and as additional financial security if a tenant skips out early on the lease without paying. State laws often limit how much a landlord can charge a tenant for a security deposit, and there are usually security deposit laws which require landlords to put deposits in a separate account that pays interest on those funds.

Landlords must also follow a process, dictated by state law, to account for and refund the security deposit to a tenant. Keep in mind that there is a time limit for how long landlords have to return a tenant’s security deposit (full or partial) or provide a written notice as to why it was not returned. Landlords must understand their state law because they will face stiff penalties for not following these landlord and tenant laws. Below is an example using North Carolina law regarding security deposits.

Refunding Security Deposits in North Carolina

In North Carolina, the Tenant Security Deposit Act gives landlords 30 days to account for and refund a tenant’s security deposit. However, if the extent of the landlord’s claim against the security deposit cannot be determined in 30 days (perhaps there is extensive damage, or the damages are too complex to repair in 30 days), then the landlord may issue an interim accounting within 30 days and a final accounting within 60 days. The statute does not provide an option to hold a tenant’s security deposit for more than 60 days without a full accounting.

How Landlords Can Use Security Deposits

While the details vary from state to state, here are a few examples of how landlords can use a tenant’s security deposit. A landlord can withhold security deposits when a tenant violates the lease by not paying rent. Landlords should include wording in the lease specifically stating that the security deposit can not be used for the last month’s rent.

Landlords use the security deposit for repairing rental property damage caused by the tenant or guests. Funds can also be used for cleaning to restore the rental unit to the original condition at the time of tenancy. If a tenant vacates the rental home and takes any property from the premise (refrigerator, blinds, etc.), the landlord can use the security deposit to pay for replacing those items.

The security deposit cannot be used for anything that is determined to be normal wear and tear. Also, remember the move-in inspection checklist the tenant completed, signed and returned at the beginning of the tenancy? That checklist comes in quite handy when it’s time to determine the move-out property condition and the security deposit amount which will be returned to the tenant.

Remember, the above information regarding security deposits should not be taken as legal advice. Landlords should, however, understand the security deposit laws of the state where their rental units are located to avoid costly compliance issues.

One of the reasons landlords with rental properties in Raleigh, Durham and Chapel Hill work with Red Door Company is because of our experience and expertise when it comes to complying with all applicable laws and ordinances. Contact us today to learn how our expert property management team will help you minimize exposure to risk and protect your North Carolina rental real estate investment.