Real Estate agents who engage in property management or who themselves own rental property often unintentionally violate the law because they are not fully aware of the requirements of the Real Estate License Law and the North Carolina Tenant Security Deposit Act. The following are ten tips to help property managers remain in compliance with the laws regarding security deposits.
1. If the landlord chooses at the beginning of the tenancy to hold the security deposit, the tenant should be so notified. If your services are discontinued during the term of the tenancy, you must follow the owner's wishes with respect to the disposition of any security deposits held by you, including turning over the deposits to the owner upon his request. However, you should remind the owner that he must either deposit the funds in a trust or escrow account in an insured North Carolina bank or savings institution or supply a bond and notify the tenants of the location of the funds. (The owner, unlike the agent, is allowed to supply a bond. See # 2 below.) In addition, you should provide written notice to an tenants that their security deposits are being turned over to the owner.
2. Deposit an security deposits in a trust or escrow account In an insured balm or savings institution located in the State of North Carolina. If you are acting as a property manager on behalf of another, you cannot supply a bond in lieu of placing security deposits in a trust account. You must maintain and deposit an money that you receive while acting in the capacity of a real estate broker. [See N.C.G.S. Section 93A-6(a)(12)].
3. Within thirty (30) days after the beginning of the lease term, notify tenants of the name and address of the bank or savings institution where their deposits are located. This can be easily accomplished by simply setting forth in the lease agreement the name and address of the institution where the monk win be deposited. [See N.C.G.S. Section 42-50]
4. If you manage your own rental properties along with rental properties owned by others, be sure to segregate the tenant security deposits into two separate accounts— one for your own properties and one for the properties of others. Failure to do so win constitute commingling which is a violation of the Real Estate License Law. [See N.C G.S. 93A-6(a)(12)]
5 . Limit the amount of the security deposit to the following: Two weeks rent if the tenancy is week-to-week; one and one-half month's rent if the tenancy is month-to-month, and two months' rent for terms greater than month-to-month. If you require deposits in excess of these amounts, you win be in violation of the Tenant Security Deposit Act. [See N.C.G.S. Section 42-51].
6. Maintain the security deposit in your trust or escrow account for the duration of the lease term. Security deposits cannot be spent on any expenses or losses during the tern of the lease, even if the expenses or losses are caused by the tenant . [See N. C G. S. Section 42-51 which provides that upon termination of the tenancy, security deposits can be applied to various expenses and damages incurred by the landlord or his agent].
7. In addition to the regular security deposit, the landlord may legally require that you charge a reasonable, non-refundable fee for pets kept by the tenant on the premises. [See N.C.G S. Section 42-53].
8. At the termination of the tenancy, apply the deposit only to those expenses for which you or the owner are legally entitled to be compensated. These expenses are limited to the following acts of the tenant: (1) Any nonpayment of rent; (2) damage to the premises, (3) nonfulfillment of the rental period; (4) unpaid bills which become a lien against the premises due to the tenant's occupancy; (5) costs of re-renting the premises after breach by the tenant; (6) cost of removal and storage of the tenant's property; or (7) court costs in connection with terminating the tenancy. Neither you nor the landlord may withhold as damages part of the security deposit for conditions that are due to normal wear and tear nor may you retain an amount from the security deposit which exceeds your actual damages. For example, if you are able to re-rent the premises to someone else, you cannot keep the entire security deposit for nonfulfillment of the rental period; you can keep only enough of the deposit to cover the days during which the premises were not rented. [See N. C. G. S. Section 42-51 and 42-52].
9. You may assess a "cleanlog fee" against the deposit only In those cases where the tenant has left the premises "filthy ' thereby causing damage to the premises. Costs incurred for routine cleaning cannot be charged against the deposit because they are considered part of the normal wear and tear of the premises. [See N.C.G.S. Section 42-51 and 42-52].
10. After determining the amount of any damages to which you and/or the landlord are legally entitled as set forth in paragraphs eight and nine above, apply that portion of the security deposit to the allowable expenses actually incurred, and refund the balance to the tenant along with an accounting itemizing the deductions from the deposit. All this must be done within 30 days from the termination of the tenancy. [See N. C. G. S. Section 42-52]