What Can a Landlord Use a Security Deposit For?
As a landlord, you may ask yourself what can you use a security deposit for?
While you may be pressed to use the security deposit for anything and everything under the sun, as a landlord, it is not that easy.
One of the things you must consider when determining what you can use a security deposit for, is who does the security deposit belong to.
Contrary to what many landlords believe, the security deposit does not belong to the landlord.
This is why there is a complete body of law that deals with how to handle security deposits in North Carolina.
The security deposit belongs to the tenant, and while it can be used for a variety of things, use of the security deposit must be consistent with North Carolina law.
We won’t go over all the details involved in handling a security deposit. You can read our longer blog about How to Handle Security Deposits in North Carolina.
For now, there are a couple of things we want to discuss, so you can have a better understanding of what can a landlord use a security deposit for.
What is a Security Deposit
A security deposits is an amount of money paid by a tenant when the tenant moves into a rental property. North Carolina law makes it clear that the money is held in trust, until the tenant, or landlord, has terminated the agreement.
The North Carolina Landlord Tenant Act provides a list of the 7 permitted uses for the security deposit, in the North Carolina Tenant Security Deposit Act.
In accordance with North Carolina General Statutes 42-51, a landlord is permitted to use the security deposit for:
1. Nonpayment of rent that is due;
2. Damage to the property that is beyond normal wear and tear;
3. Nonpayment of rent during a rental period. This also includes future payment of rent when the tenant has terminated the lease agreement, and the landlord has to find another tenant.
4. Any unpaid bills from the tenant attached to the property, which may become a lien against the property.
5. The cost of getting the property into rent-ready condition after the tenant has breached the lease;
6. Any cost associated with the removal of the tenant’s property from the premises; and
7. Any court cost and fees connected to the summary ejectment process.
Sounds easy right?
While everything may seem crystal clear, and many of the 7 things a landlord can use a security deposit for are cut and dry, there is one that usually isn’t:
Can the Landlord Use the Security Deposit for Normal Wear and Tear?
Looking at cases on what can a landlord use the security deposit for, what jumps out the most is the litigation involved with using the security deposit for damage that is beyond normal wear and tear.
What makes it difficult is the fact that North Carolina law, whether statutory or by court case, does not define exactly what encompasses normal wear and tear when it comes to how a landlord can use a security deposit.
The decision, for the most part, is on a case by case basis.
What this means is that, as a landlord looking to use the security deposit for damages you consider beyond normal wear and tear, you may end up having to give the tenant their money back.
When there is an absence of clearly written law, we can look to other sources to figure out what a landlord can use a security deposit for, if the damage is beyond normal wear and tear.
Although not the law, but generally pointed to by courts, the North Carolina Real Estate Commission and the North Carolina Department of Justice, have provided us with some insight as to what can be considered normal wear and tear.
Under these guidelines, some of the things which constitute normal wear and tear as it relates to what a landlord can use a security deposit for includes:
1. Worn, old, or dirty carpet;
2. Worn bathroom sink;
3. Leaking faucets and toilets;
4. Dirty windows;
5. Dirty walls;
6. Faded or cracked paint;
7. Broken or frayed curtains or blind strings;
8. Burned out heating elements; and
9. Small holes in the wall from hanging pictures.
What is Above Normal Wear and Tear As it Relates to Security Deposits?
So that we have gotten what normal wear and tear generally is, let’s look at what might be considered beyond normal wear and tear when thinking about security deposit withholding.
According to third party resources, beyond normal wear and tear includes:
1. Appliances that are extremely dirty which require extraordinary cleaning;
2. Broken counter tops;
3. Broken Windows;
4. Large holes in the walls;
5. Extra filthy property requiring cleaning;
6. Burned spots, stains, or missing pieces from the carpet;
7. Crayon marks on the wall; and
8. Bizarre paint colors.
Ok, so now that we got through what a landlord can use a security deposit for, we have to discuss the right way and wrong way to withhold the security deposit.
The Landlord Must Provide Notice of Withholding
Ok. So you have done your move out inspection, and discovered a number of issues, for which you want to use the security deposit.
Seems easy doesn’t it?
But there is a little more to it.
Going back to our discussion on what is normal wear and tear, you must be aware that although the law allows you to withhold some, or all of the security deposit, you must keep in mind the North Carolina Security Deposit Act states:
The landlord may not withhold as property damages part of the security deposit for conditions that are due to normal wear and tear nor may the landlord retain an amount from the security deposit which exceeds his actual damages.
What this means is that while, as a landlord, you can use the security deposit for the damages, it cannot exceed the actual cost.
Getting back to the notice requirement as to what the landlord wants to use the security deposit for.
By law, in North Carolina, you have 30 days to refund the tenant’s security deposit. In the event you need more than 30 days to determine what you can use the security deposit for, you must provide the tenant with an interim estimate of expenses no later than 30 days after the tenant has vacated the property.
It doesn’t have to be the exact amount of what the landlord wants to use the security deposit for, but you want a good estimate.
Once you have given this notice, you have another 30 days to provide the tenant with a final accounting of what you used the security deposit for. Additionally, you should return any unused portions of the security deposit to the tenant.
The Key Takeaway When Considering How You Can Use the Security Deposit
At the basic level, a good way to think about what a landlord can use a security deposit for is, almost essentially, anything that involves tenant obligations, that are not normal wear and tear.
In other words, a landlord can use the security deposit to cover almost anything, but the landlord should not seek to enrich themselves for expenses that are in the ordinary course of business.
To avoid the headache of deciding what damage occurred during a tenancy, it is prudent upon you, as a landlord, to identify damages you can use the security deposit for, from documentation provided by the move-in and move-out inspections.
Having property documentation will provide the best defense against unfounded tenant claims when you have decided to use the security deposit for damage beyond normal wear and tear.
If you have any questions, please don’t hesitate to reach out to us.
We are here to help.
The Team at Linchpin Property Management.
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