North Carolina Security Deposit Laws in 2024

North Carolina Security Deposit Limits

In North Carolina, landlords can charge tenants the following for security deposits:

• Up to 2 months' rent for a security deposit
• No set limit on pet deposits or fees

When moving into an apartment or rental home in North Carolina, tenants can expect security deposits to equal up to two times the monthly rent amount. Landlords may require additional "pet deposits" or nonrefundable fees on top of the security deposits, with no set limits under North Carolina statutes. The reason for allowing larger security deposits is to protect landlords from possible losses if a tenant were to damage a home or vacate early without paying remaining rent due.

Having large amounts on hold for deposits can place a significant financial burden on renters. However, there are some provisions in North Carolina laws surrounding security deposits. For example, any deposit amounts above and beyond the two months' rent maximum would need to be clearly outlined in a legal rental contract. And although pet deposits have no limits, landlords must charge "reasonable" nonrefundable fees. Excessively overcharging for pet damages that exceed wear and tear could be grounds for a dispute.

Ultimately, while landlords have considerable leeway in collecting security deposits to protect their investments in North Carolina, renters also have rights when it comes to recovering their deposits or disputing unreasonable deductions. We'll explore those protections throughout the rest of this guide.

Holding the Security Deposit

Landlords in North Carolina are required to place tenant security deposits in a trust account or escrow account (separate from their personal funds and other accounts). The purpose of a trust or escrow account is to protect the tenant's deposit money and make sure it's accessible when needed. Deposit accounts must be established with a licensed and insured bank or savings institution located in North Carolina.

Throughout the lease term, interest accumulated on the security deposit actually belongs to the tenant. Landlords must pay a tenant 5% interest annually if the unit is managed by the owner, or landlords must provide the tenant the actual interest earned if the unit is managed by a real estate broker (but not less than 75% of the interest earned). This interest payment must be provided to the tenant by the end of the calendar or lease year.

So in summary, landlords have an obligation to properly hold security deposit funds for the duration of the lease. Deposits cannot just be comingled with the landlord's accounts or used for other purposes. And tenants have a right to receive interest on their security deposit funds.

Returning the Security Deposit

In North Carolina, landlords have 30 days after a lease terminates to return the tenant's security deposit. This includes when a tenant moves out at the end of a lease. 

The landlord can use the security deposit for a few specific purposes. First, the landlord can deduct money to cover any unpaid rent owed by the tenant. This does not include using the deposit to cover unpaid rent while the tenant still lives in the unit. 

The landlord can also use the deposit to pay for cleaning the unit at the end of the lease, as long as the unit was left in an unusually messy or dirty condition. These deductions must be reasonable. Lastly, the landlord can use the security deposit to cover any damages beyond normal wear and tear that were caused by the tenant or their guests. This includes things like:

• Holes in the wall 
• Stains or burns on the carpets
• Broken appliances like a dishwasher
• Missing fixtures like cabinet knobs

Normal wear and tear refers to minor issues that build up naturally over the course of a tenant living in the unit, such as minor carpet stains and small scratches or scuffs on the walls or flooring. These are not deductible from the security deposit under North Carolina law.

The landlord must send along an itemized statement of deductions that explains why each amount was withheld from the deposit. If any funds remain after deductions, the landlord must return those remaining funds to the tenant.

Security Deposits & Property Transfers

If a landlord sells the property during a tenant's lease term, the new landlord becomes responsible for the tenant's security deposit. The new landlord must honor the deposit that the tenant paid under the existing lease. North Carolina law requires the new owner to take ownership of a tenant's security deposit when acquiring the property.

If the property is sold or transferred, tenants should provide the new landlord record of their original deposit amount. This includes providing copies of the previous lease agreement and any receipts showing deposit payments. Notifying the new landlord ensures the tenant is credited properly for the full deposit amount. A tenant should not have to pay the new owner a "new" security deposit. The succeeding landlord is held responsible for refunding the security deposit, with interest, at the end of the lease - just as the previous landlord was obligated to do.

Breaking a Lease Early

Tenants who break their lease with time remaining forfeit their security deposit in North Carolina. Breaking the lease will end the rental agreement early, but the tenant will still be held responsible for the rent payments of the remaining lease term. 

North Carolina law does allow landlords to make reasonable efforts to mitigate damages by finding a new tenant for the unit. But the tenant remains ultimately liable for payments through the end of the original lease term unless the landlord is able to find someone else to bring in rental income. The security deposit’s primary purpose is to protect the landlord from lost income and reimburse costs associated with having to re-rent the unit.

So unless the landlord is able to get a new tenant for a broken lease with time still remaining, the tenant loses their deposit and must continue paying rent until the original lease end date. Breaking the lease is a breach of the rental agreement, and the tenant forfeits the deposit posted in case such a thing occurred.  

For example, if a tenant signs a 1 year lease but has to move out after only 6 months, they forfeit their entire deposit. And they must keep paying rent for the remaining 6 months of the lease term unless the unit is re-rented. In this case, the tenant has paid the security deposit to cover costs of having to re-list and turn over the unit early. However, the tenant is still liable for as much of the remaining rent as the landlord is unable to get a new tenant paying.

So when breaking a lease in North Carolina, be aware that your deposit will not be returned, and you will most likely have to pay all rent owed through the end of your original lease term. Check your rental contract for the exact terms and conditions regarding early termination.  This underscores the importance of fully considering and anticipating how long you will realistically need to rent before signing a long lease. Think very carefully before locking yourself into a contract you may not be able to fulfill completely. Otherwise, you risk losing months of rent in additional to your entire security deposit.

Nonpayment of Rent

A tenant's security deposit cannot be used by the landlord to cover unpaid rent during the term of the lease, even if the tenant vacates the unit. 

If a tenant fails to pay rent or quits paying rent while still in the apartment, the landlord cannot deduct this rent money from the tenant's deposit. The tenant is still legally required to pay the rent owed according to the terms of the lease, even if vacating the unit early. 

Nonpayment of rent is considered a breach of the lease agreement. Even if the tenant vacates the property, they would still owe the rent and additional fees for the remainder of the lease term according to North Carolina law. 

The security deposit is to cover unforseen damages, cleaning, or other costs when the tenant moves out. It legally cannot be used by the landlord to cover a tenant's nonpayment of rent or financial shortfall during the tenancy. If there is unpaid rent owed when a tenant vacates, the landlord can legally pursue collection of back rent in court or by sending the unpaid amount to collections.

A landlord cannot make deductions from a security deposit for money owed, including back rent or early termination fees, while the tenant still resides in the unit. Money owed for rent and fees is a separate financial obligation from the security deposit that must be resolved when a tenant vacates the property.

Pet Deposits & Fees

Under North Carolina law, landlords are permitted to charge an additional security deposit payment equivalent to a maximum of one month's rent for tenants with pets in order to cover any potential pet damage during the tenancy. This pet deposit is subject to the same laws and regulations as standard security deposits in North Carolina.

Additionally, landlords may charge a reasonable nonrefundable pet fee. This payment is classified separately from the security deposit and is intended to cover the increased wear and tear or damage that may result from allowing pets on the property. Since this fee is nonrefundable, it cannot be applied towards rent payments or deducted from the security deposit. The amount that qualifies as a reasonable pet fee can vary depending on factors like the size of the rental unit and whether it is a house or apartment, but generally falls in the range of $200 to $500.

Disputing Security Deposit Deductions

Disputed Deductions

If a tenant believes deductions have been unfairly or unlawfully taken from the security deposit, the tenant has the right to dispute those deductions in small claims court. This involves filing suit against the landlord to recover the amount deducted.

Filing in Small Claims Court

Small claims courts in North Carolina hear cases for disputes up to $10,000. To file, tenants will need to provide:

• A copy of the written security deposit agreement or lease. This should state the amount of the deposit and any stipulations or guidelines for deductions.
• Evidence of the deposit amount paid at the beginning of the lease term, such as a canceled check or receipt.
• A copy of the itemized deduction list provided by the landlord upon lease termination.
• Photographic evidence showing the condition of the rental unit at move-out. Dated photos should illustrate the areas for which deductions were taken.
• Estimates for unfair or excessive cleaning or repair costs deducted from the deposit.
• Any additional evidence to support claims and dispute the deductions.

Evidence is Key

The small claims court may order the deposit to be paid back in full or in part if the tenant shows lack of evidence or unfair or unlawful deductions. Strong evidence is necessary to win the case. Tenants should track and document the condition of the unit and all transactions related to deposits carefully.

Security Deposits Without a Lease

Even without a written lease, North Carolina statutory rules regarding security deposits still apply. Landlords are required to place the deposit in a trust account and return it within 30 days after the tenant vacates the property. 

If there is no formal lease agreement spelling out the deposit amount, it is crucial that tenants obtain documentation showing they paid a deposit, the amount, and the date. Having receipts, cancelled checks, or other records helps verify that a deposit was collected if disputes arise.  

Some important steps tenants should take when no written lease exists include:

• Request a receipt from the landlord for any deposits paid, including date and amount.
• Pay any deposits using a check or other traceable payment method rather than cash. Retain bank records showing the amount and timing of deposit payments.
• Conduct a walk-through inspection documenting the condition of the rental unit when moving in and out. If possible, have the landlord sign both inspection reports agreeing to the documented condition.  
• Provide the landlord written notice of intention to vacate the property in line with rental period timelines under North Carolina law (i.e. 7 days for week-to-week lease).
• Provide the landlord a forwarding address in writing when vacating the unit to receive any deposit refunds.
• Maintain copies of all documentation regarding the security deposit, including any notices or letters exchanged with the landlord.  

Even without the benefit of a written contract, tenants have rights under North Carolina law regarding residential security deposits that still apply. Carefully documenting the details regarding payment of any deposit funds can reduce the likelihood of future disputes should they arise.

Frequently Asked Questions About North Carolina Security Deposits

Can my landlord charge me for things like carpet cleaning and repainting when I move out?

No, under North Carolina law things like carpet cleaning and repainting are considered normal wear and tear, which cannot be deducted from the tenant's security deposit. The security deposit can only be used to repair or replace damages beyond reasonable wear and tear.

How long does my landlord have to return my security deposit after I move out?

North Carolina landlords have 30 days after the lease term ends or you vacate the unit to either return your full deposit or provide an itemized list of any deductions and the remaining deposit balance.

What exactly counts as "normal wear and tear" that can't be deducted from my deposit?

Normal wear and tear refers to the expected decline in condition that occurs when a rental unit is lived in and used as intended, even when well cared for. This includes minor scratches, scuffs, nail holes, stains, faded paint or carpet, etc. Anything beyond normal wear and tear like broken appliances, holes in walls, or pet damage can justify deposit deductions.

My landlord is selling the property I rent. What happens to my security deposit?

If your North Carolina rental property is sold, your deposit transfers over to the new owner. Make sure to provide the new landlord documentation showing proof of your original deposit amount when you transferred the lease.  

Can my landlord use my security deposit to cover rent I owe instead of returning it to me?

No, North Carolina law prohibits landlords from using the security deposit to cover unpaid rent. The deposit can only legally be used for property damages exceeding normal wear and tear after you vacate the unit. You would still owe any unpaid rent per the lease terms.

What if my landlord does not return my deposit or provides no list of deductions within 30 days?

If your landlord does not comply with North Carolina security deposit laws, you can file a complaint in small claims court. Be prepared to provide any documentation you have showing proof of payment of deposit, photos documenting the move-out condition, and records of communication requesting return of deposit.