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Each year, hundreds of thousands
of North Carolinians rent houses, apartments, mobile homes, and other dwellings
as their residences. For the "first-time tenant"-and even more
"veteran" renters-this can be a confusing and somewhat unsettling
experience. As a tenant or future tenant, the more you know about the process of
renting residential real estate, the better you will be able to look out after
your interests and carry out your responsibilities under your rental agreement.
This booklet addresses an important aspect of the rental process which generates
many questions from tenants-tenant security deposits.
The North Carolina Tenant
Security Deposit Act (the "Act") sets out the rights and
responsibilities of tenants, landlords and their agents regarding tenant
security deposits. The Act applies to all persons and firms which rent
residential properties (except single rooms) whether on a weekly, monthly, or
annual basis. The Act does not require landlords (or their agents) to collect
security deposit, but they usually do in order to assure that they will be
reimbursed for certain specified losses caused by tenants. Landlords also
frequently use the services of real estate agents to help them manage and rent
their property. These agents must be licensed by the North Carolina Real Estate
Commission and, like the landlord, must comply with the Tenant Security Deposit
Act as well as the N.C. Real Estate License Law and various rules adopted by the
Real Estate Commission when renting the owners' property.
How much security deposit can I
be charged? Can my landlord charge me a "pet fee"? What happens to my
security deposit while I'm a tenant? And what happens to it once my rental term
is over? These are some of the questions that this booklet attempts to answer.
Although this information focuses on security deposits from your perspective as
a tenant, it should also be useful to landlords, property manager s and rental
agents.
Read this booklet carefully!
Then, if you still have questions about tenant security deposits, you are
encouraged to contact your private attorney or call the Information Section of
the N.C. Real Estate Commission's Legal Division (919/733-9580).
Q: How much security deposit can
a landlord charge?
A: If your agreement with the
landlord is to rent his property on a week-to-week basis, your deposit may not
exceed the equivalent of two weeks' rent. If you're renting on a month-to-month
basis, your deposit cannot be more that 1 ½ months' rent. And, if your rental
period is greater than month-to-month, your deposit cannot be more than two
months' rent.
Q: Can my landlord charge me a
"pet fee"?
A: Yes. In addition to the
security deposit, your landlord may also charge you a non-refundable fee if you
plan to keep a pet in his property or on the grounds. The "pet fee"
can be any "reasonable" amount that the landlord wishes to charge. If
your pet damages the property, the landlord may keep the amount of the pet fee
and security deposit necessary to repair the damage.
Q: What happens to my security
deposit while I'm a tenant?
A: To assure that your security
deposit is safe during the period of your tenancy, State law requires that it be
kept in a "trust account". A trust account is simply a bank account
that does not contain any of the landlord's personal funds. If a real estate
agent is managing the property, the agent's trust account checks, deposit slips
and bank statements must contain the words "trust account" or
"escrow account". The trust account must be maintained in a licensed
and insured North Carolina band or savings and loan institution. Within 30 days
following the beginning of your lease term, the landlord or his agent must
notify you in writing where your security deposit has been placed (typically,
this notification is given in the lease), and if your security deposit is moved
to a different bank or savings and loan, you must be notified of the new
location.
Q: Are there any exceptions to
the requirement that my security deposit be placed in a trust account?
A: Yes, there is one exception.
If the owner is managing his own property (or the property is being managed by
an agent who has agreed for the owner to hold the deposits), the owner may post
a bond to cover the security deposits. In such case, the landlord must (1)
notify you and the other tenants of the name of the insurance company providing
the bond; (2) purchase the bond from an insurance company licensed to do
business in North Carolina; (3) name you and the other tenants as payees under
the bond; and (4) assure that the amount of the bond is sufficient to cover all
security deposits collected. [Note: It is difficult for landlords with multiple
rental units to maintain the required minimum bond amount because, with tenants
constantly moving in and out, the minimum security deposit balance changes from
day to day. Consequently, most landlords choose to place security deposits in a
trust account rather than purchase a bond].
Q: Can my security deposit be
placed in an interest-bearing account?
A: Yes, under certain conditions.
If a real estate agent is managing property for the owner, he may place your
deposit in an interest-bearing account if he has your written permission and the
written permission of the owner. If your lease authorizes the agent to place
your security deposit in an interest-bearing account, the authorization in the
lease must be stated in a clear and conspicuous manner. The interest may be paid
to you, to the landlord, or to the agent, depending upon your agreement with the
landlord.
Q: What will happen to my
security deposit at the end of my lease term?
A: If you stay for the entire
lease term and you have paid all rent due, the landlord (or agent) may deduct
from your security deposit only the actual cost of repairing any damage which
you have done to his property. He cannot charge you for damage caused by
"ordinary wear and tear". What constitutes "ordinary wear and
tear" must be determined on a case-by-case basis. For example, if you are
the most recent tenant in the property, the landlord cannot charge you to
replace such items as carpet, plumbing and appliances which need replacement
because they are old and worn out. In fact, you cannot be charged for even
contributing to the normal wear and tear of such items. On the other hand, if
you caused the item to wear out because of your mistreatment of it, you may be
charged for the amount of unusual wear which you caused (but not the entire cost
of replacement). Ordinarily, costs for routine cleaning and maintenance
(painting, carpet cleaning, etc.) may not be deducted from your security
deposit. However, if you leave the property so filthy that unusual or
extraordinary measures are necessary to clean or restore the premises, the
landlord may deduct the cost of such cleaning from your security deposit.
Q: What will happen to my
security deposit if I vacate the property before the end of my lease?
A: In addition to any physical
damage which you may have caused to his property, the landlord may also deduct
from your security deposit his actual damages caused by your moving out of his
property before the end of your lease term; however, he may not charge you a
"termination fee" or impose any other penalty or forfeiture of deposit
for your early termination. For example, your rent in $600 per month and you
move out of the landlord's property two months before the of your lease. If it
takes the landlord (using his best efforts) one month to re-rent the property,
he may deduct $600 from your security deposit as lost rent for the period during
which his property was vacant.
Q: What will happen to my
security deposit if, for some reason, I am unable to pay my rent?
A: If you fail to fulfill your
obligations under the lease (including your obligation to pay rent), the
landlord or his agent may evict you from his property. (The court proceeding is
known as "summary ejectment"). In addition to having you removed from
his property, the landlord (or agent) may recover from you any unpaid rent and,
of course, the cost of repairing any physical damage which you may have caused
to his property-but not damage due to ordinary wear and tear. In addition, if
you leave behind any of your personal property (furniture, clothing, etc.), the
landlord may also recover from you the cost of storing your property. If your
security deposit will not cover the landlord's damages for unpaid rent, physical
damage property, you will be liable for payment of any remaining costs.
Q: Is there a deadline by which
the landlord or agent must return my security deposit?
A: Within 30 days after the
termination of your tenancy, the landlord (or agent) must either send or deliver
to you a full refund of your deposit, or, if the deposit is not to be refunded
in full, itemize in writing any allowable deductions. So, it is important for
you to give the landlord (or his agent) your forwarding address. If the landlord
or agent cannot locate you, he must hold in his trust account for at least six
months any amount of you security deposit remaining after the proper damages
have been deducted. If the landlord (or agent) fails to refund your deposit, you
can sue for recovery of your deposit and reasonable attorney fees.
Q: What will happen to my
security deposit if the ownership or management of the property that I rent is
transferred to someone else?
A: If the landlord
who collected your security deposit transfers ownership of his property to
someone else during the term of your lease, he must either refund your security
deposit to you (after making any allowable deductions), or transfer your deposit
to the new owner (after making any allowable deductions) and notify you in
writing of the new owner's name and address. In either case, your deposit must
be refunded or notice given to you of the new owner's name and address within
thirty days of the transfer. Likewise, if you have paid your security deposit to
the landlord's agent and the agent discontinues managing the property during the
term of your lease, the agent must either transfer your deposit to the
landlord/owner or, with the owner's permission, transfer your deposit to the new
manager. In either case, the agent to whom you paid your security deposit must
notify you of the new location of your deposit and, if your deposit is being
transferred to the owner, advise the landlord of his or her responsibilities to
you under the Tenant Security Deposit Act.
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