The common belief that the security deposit belongs to the owner is false. The security deposit that is paid by a resident when they move into a rental dwelling actually belongs to the resident and is held in trust until their tenancy is terminated. At the time of termination, there are only 7 permitted uses for the security deposit by the Landlord according to the Resident Security Deposit Act, North Carolina General Statutes (NC GS 42-51). The permitted uses according to this act are as follows:

1. Nonpayment of rent that is due.
2. Damage to the premises (other than damage due to “ordinary wear and tear”).
3. Non-fulfillment of the rental period (future rent due under the lease agreement when the Landlord is unable to re-rent the unit for a similar amount after diligent efforts to do so).
4. Unpaid bills from the resident’s occupancy which become a lien against the property.
5. The cost of re-renting the premises after a breach of the lease by the resident.
6. Costs of removal and storage of resident’s personal property.
7. Court costs and legal fees in connection with terminating a tenancy.

The most common dispute over a resident deposit is regarding #2 stated above, damages above and beyond normal wear and tear. There are no statutes or court decisions that clearly define what “ordinary wear and tear” is, mostly due to these determinations being made on a case by case basis. There is a lot of grey area involved in determining what is “normal wear and tear” and what is “above and beyond normal wear and tear.” The North Carolina Department of Justice and The North Carolina Real Estate Commission have published consumer information to provide guidance for Landlords, Property Managers and Residents. Here are some examples of both as outlined in the publication:

Damage due to “normal wear and tear”:

1. Worn, old or dirty carpeting
2. Faded or cracked paint
3. Dirty windows
4. Dirty walls
5. Frayed or broken curtain or blind strings
6. Leaking faucets or toilets
7. Small nail holes in walls (from picture hanging)
8. Worn lavatory basin
9. Burned out range heating elements

Damage due to “Above and beyond normal wear and tear”:

• Crayon marks on walls
• Large holes in walls
• Broken windows
• Burned spots or stains in carpeting
• Bizarre or unauthorized paint colors
• Broken counter tops
• Filthy appliances (such as ovens and refrigerators) requiring extraordinary cleaning
• Exceptionally filthy premises (in general) requiring extraordinary cleaning

Landlords and property managers may not use the resident security deposits to cover the expense of correcting problems resulting from “normal wear and tear.” These expenses are considered to be part of the Landlord’s cost of doing business. Deductions may be made from a resident security deposit to cover the expense of repairing “damage not due to normal wear and tear” which occurred during the tenancy. Many of the disputes that arise of these situations are avoided by utilizing a move-in checklist or inspection and before pictures to document the condition of the property when the resident took occupancy. This will help curb the defense by the resident, “That was like that when I moved in.” It also helps to set the expectation up front when signing the lease agreement with the resident to explain what they will be held responsible for maintaining the property.

To obtain more information regarding the resident Security Deposit Act or the Landlord and Resident Law, you can visit the North Carolina Real Estate Commission website at http://www.ncrec.gov/Brochures/Print/resident.pdf for a list of frequently asked questions and answers regarding resident security deposits and http://www.ncrec.gov/Brochures/Print/Renting.pdf for general questions and answers regarding renting residential real estate.