When you’re renting out a Matthews rental property, it’s important to collect a security deposit from the tenant before the lease begins. This deposit must be held until the end of the lease period, and will protect you against nonpayment of rent, unpaid utility bills, and potential property damage left behind by the tenant.

North Carolina has several regulations and requirements when it comes to the collection and return of the tenant’s security deposit. We’re discussing those today.

Limits on the Deposit You Collect

When you have a tenant living in your property month to month, you cannot collect more than the equivalent of one-and-a-half month’s rent. So, if your rent is $1,000 per month, your security deposit cannot exceed $1,500.

For tenants who are in place more than two months, your security deposit can equal the amount of two months’ rent. On that same $1,000 property, you could collect a $2,000 security deposit.

Once you have collected the deposit, keep it in a trust account separate from your own funds. You’re also required to notify the tenant where the money is deposited. We recommend including this information in your lease agreement.

Returning the Security Deposit

After a tenant has vacated your property, the law requires you to return the security deposit within 30 days of the move-out. If you are going to withhold some or all of the deposit to pay for repairs and other legally applicable expenses, you must provide the tenants with an itemized list of those costs. You should also provide copies of invoices and receipts.

Disputes between tenants and landlords over the security deposit are fairly common. Make sure you’ve done a good job documenting the condition of the property before move-in and after move-out. You’ll need to substantiate any claim you make against a tenant’s deposit, otherwise you can get into some expensive legal trouble.

Security Deposit Deductions: Wear and Tear vs. Damage

When you’re reviewing the condition of your property after the tenants have left, make notes and take pictures. Normal wear and tear is anything that would happen to the home in the normal course of living there. This might include scuff marks on the walls or floors where furniture was placed. It might also include small nail holes where pictures were hung or worn areas of the carpet in high-traffic hallways and rooms. Wear and tear is your responsibility as a landlord. You cannot deduct from the deposit for these things.

Damage is different. It might look like carpet that’s been torn up or damaged by children or animals. It could also be large holes in the walls or doors that were ripped from their hinges. Sometimes the damage is accidental, but it’s still the responsibility of the tenant. You can charge the deposit for things like broken light bulbs, missing blinds, alterations to the home, or missing appliances. Document what you’re charging for, take pictures, and make an itemized list.

We recommend that you act reasonably when charging the tenant’s deposit. A court action can be difficult for landlords to win, and the punitive damages will far exceed the amount you’re arguing over. Try to resolve disputes privately.