Using the Web for Handling as a Resource Residential Tenant Security Deposits

(Real estate brokers must conduct their business in accordance with a growing body of laws and rules. The Commission’s Web site enables compliance with many of these legal requirements by providing timely, convenient access to the information that is essential to a property manager’s business. Certain violations of laws and rules arise frequently in property management, including the handling of tenant security deposits. This article discusses how you can use the Commission’s Web site to properly manage this aspect of your business.)

A landlord asks you to serve as a rental agent, a buyer wants to acquire a rental property, a prospective tenant seeks a rental, an owner of rental property is interested in selling – each situation can involve the care and handling of tenant security deposits, if only to give your client information about what is required.

How do you as a busy, always-pressed-for-time, real estate broker remain informed and current on this important aspect of your brokerage business? How can you accurately and consistently serve the needs of your clients?

North Carolina state law, which governs the use of tenant security deposits, and Commission rules are your primary sources of information. You can maintain the key elements of each for quick, easy reference on your computer and through your mobile devices.

One key document you will want to obtain is the Tenant Security Deposit Act, (Chapter 42 of the North Carolina General Statutes, Article 6). Access it directly with the link (if you are reading this from a digital file) or through the Commission Web site, (Home page: Publications/Bulletins (2007-2014)/May 2014). Alternatively, you can find all of the North Carolina General Statutes at www.ncleg.net. Once you have the link on your computer or mobile device, you may want to save it and the links that follow in this article in one convenient location for future access.

The Tenant Security Deposit Act consists of seven sections, summarized as follows:

§ 42-50.  Deposits from the tenant.

The deposits must be placed in an insured North Carolina bank unless the landlord provides the tenant with a bond.

§ 42-51.  Permitted uses of the deposit.

There are eight permitted uses by a landlord including nonpayment of rent, damage to premises, damages for nonfulfillment of rental period, unpaid bills that become a lien against the property, costs of re-renting after a breach, costs of tenant property removal, court costs and certain fees defined in § 42-46 (part of the Residential Rental Agreements Act). In addition, this section also defines the amount of the deposit that can be charged by a landlord depending upon the length of the tenancy.

§ 42-52.  Landlord’s obligations.

The landlord must itemize and refund any remaining deposit within prescribed times (30 or 60 days, depending upon the circumstances).

§ 42-53.  Pet deposits.

An additional fee may be charged for pets kept by the tenant on the premises.

§ 42-54.  Transfer of dwelling units.

When a landlord’s interest in the property is terminated “whether by sale, assignment, death, appointment of receiver or otherwise….” the landlord must transfer the deposit to the new owner, or return the balance to the tenant, after making any lawful deductions and giving notice to the tenant.

§ 42-55.  Remedies.

The tenant is given legal standing to pursue specific remedies if the landlord fails to comply with the law relating to security deposits.

§ 42-56.  Application of Article.

The article applies to all persons, firms, or corporations engaged in the business of renting or managing residential dwelling units, excluding single rooms, on a weekly, monthly or annual basis.

Commission rules specify acceptable methods of handling and accounting for trust money, including tenant security deposits. If a North Carolina brokerage firm is holding the funds of others (whether deposits, rents, homeowner association money, or other funds), the broker must keep records in compliance with three Commission rules, all located in Chapter 58 of the North Carolina Administrative Code, Title 21, Occupational Licensing Boards and Commissions, Subchapter 58A – Real Estate Commission. These three provisions are A. 0116 (Handling of Trust Monday), A. 0117 (Accounting for Trust Money), and A. 0118 (Trust Money Belonging to Property Owners’ Associations).

Commission rules can be accessed through the links above or through the Commission Web site (Home page: Resources/Law/Rules – a portal to the Office of Administrative Hearings Web site). They can be saved as PDFs, HTML (text readable in your Internet browser) or DOC files (Word format).

The Tenant Security Deposit Act and the three Commission rules form the essential core of what you need to know and understand about this topic. A variety of other Commission resources provides further elaboration.

There is a complete description of trust accounting requirements through the Commission’s Web site in Handling, Accounting of Trust Money Now Explained in Three New Rules from the May 2013 Real Estate Bulletin. Each rule is summarized in the article and there is a separate outline of the types of records which must be kept. For example, a tenant security deposit check should be noted in a journal, a property transaction ledger, and a bank statement, and the bank deposit ticket and a copy of the deposit check should be retained as well among the records.

One of the latest Commission videos, Residential Tenant Security Deposits, supplements these materials with discussion of security deposit limits, deposit requirements such as notification to tenant of the bank location, recordkeeping in journals and ledgers, and permitted uses of the deposit.

Selected Property Management Issues, 2009-10 Update Course (Home page/Publications/Update BICAR Topics) and the Commission brochure, Questions and Answers on: Tenant Security Deposits, provide an expanded explanation of tenant security deposits. The latter, available free from the Commission, is written primarily for tenants and elaborates on the Act. For example, the brochure addresses the effect on a tenant security deposit including when property is vacated early, the tenant is unable to pay rent, or the property is transferred to new management or a new owner.

A companion brochure, Questions and Answers on: Renting Residential Real Estate, covers various aspects of the topic primarily for the consumer. It also references the handling of a tenant security deposit including when a property is rented with several occupants and one leaves.

Requirements to Remember in the Landlord Tenant Act from the October 2011 Real Estate Bulletin discusses specific points in the Act including security deposit accounting and the voiding of a landlord’s rights in the case of willful failure of a landlord to comply with the deposit, bond, or notice requirements of the Tenant Security Act.

An article in the February 2014 Real Estate Bulletin, New Brokers-in-Charge Should Review Trust Accounts When Taking Control, suggests that new brokers-in-charge examine ledgers to determine the nature of funds on deposit such as tenant security deposits and to check to see that copies of checks have been retained.

A new Commission brochure, Questions and Answers on: N.C. Military Personnel Residential Lease Termination,  and an article, Special Landlord and Tenant Laws for Military Personnel, in the May 2013 Real Estate Bulletin, address special provisions in the law for military personnel, for example, when a lease is terminated  early due to change of duty station or other reasons.

All of the above mentioned laws, rules and publications may be copied to brokers’ computers, or links maintained on mobile devices. For convenient access, they can be maintained in a separate folder and shared as the need may arise with clients, prospective tenants, and landlords.

This article came from the May 2014-Vol45-1 edition of the bulletin.