What If Damages Exceed Security Deposit in NC? A Property Owner’s Guide

Posted on October 18, 2023 by Rental Property in Rental Property Management
what if damages exceed security deposit

As a landlord, you expect your properties to undergo normal wear and tear. Things like chipped paint and loose hinges are simply the cost of doing business, and can be easily managed between tenancies. However, not all damages are so easy or cheap to fix, and that’s where security deposits come in.  

While not required by law in North Carolina, many landlords choose to collect security deposits to protect against potential losses. Depending on where you live, the amount you can collect for this deposit usually ranges between one to two months’ worth of rent, and is held in an interest-bearing account until the tenant vacates. 

So what if damages exceed security deposit allowances or you simply don’t have enough to cover the money owed? That’s where having a basic understanding of North Carolina landlord-tenant law will come in handy, particularly laws around landlord recourse for major damages or unpaid rent. 

With that in mind, here’s a quick overview of what to do if a tenant’s security deposit falls short.

What Can You Charge a Tenant for When They Move Out?

Can a security deposit be used for unpaid rent? What about above-and-beyond cleaning requirements? Security deposits exist to protect landlords from unexpected damages, whether physical or financial. And they can be used to resolve a number of issues, including:

  • Excessive damage, either purposeful or accidental
  • Excessive cleaning requirements
  • Unpaid rent and/or utilities
  • Losses due to tenant abandonment

These are all examples of what you can charge a tenant for when they move out, with a security deposit being a much easier way to collect funds than, say, taking a tenant to court.

How Much Can a Landlord Charge for Damages?

As for how much to charge a tenant for damages, that depends on the extent of the damage itself. Here in North Carolina, there is no legal limit to the amount you can charge, but it’s worth noting that the total cannot exceed the amount spent to repair the issue, whether that’s covering repair costs or covering unpaid rent. 

Here’s where things can get tricky, though. Because if the amount that can reasonably be charged to the tenant is not covered by the security deposit, you must find another means of collecting what’s owed. The following steps are meant to fill in the gaps and ensure that you don’t end up paying out of pocket for these types of expenses.

From Covering Damages to Collecting Unpaid Rent, Here’s What To Do If the Security Deposit Isn’t Enough

Here’s what you can do to protect your investment – and yourself – from the steep costs associated with excessive damage and unpaid rent when the security deposit isn’t enough to cover your losses.

1. Diagnose and Document the Issue(s)

Mitigating these types of losses starts even before the tenant vacates the property. 

During a tenancy, conduct regular inspections to determine whether proper care is being taken of the unit. These inspections should be done at mutually agreed upon times, with proper notice as set out in your lease. If you come across an issue in the unit, resolve it as needed under the terms of the rental agreement.

In addition, perform a thorough walk-through of the property prior to a scheduled move-out and inspect it from top to bottom. Look for any damages that aren’t part of normal wear and tear, and document these damages in writing and with images.

2. Communicate with the Tenant

If issues are found during a walk-through, provide the tenant with a complete list of damages and estimated repair costs. This gives them an opportunity to fix damages on their own if they prefer, as well as notice in the event that their security deposit will not be sufficient to cover the amount. 

Outline relevant details in a formal demand letter, and include a breakdown of deductions you will be taking from the security deposit, plus any remaining balance that will be owed. Make sure to offer options on how to settle this amount, including how they can pay and when payment is due. 

In the case of missed rent payments, a written notice should be sent out as soon as possible rather than waiting for the tenant to move out. If they’re still occupying the property but not paying rent, you can begin the legal eviction process.

3. If Necessary, Escalate to Small Claims Court

If your demand letter is ignored, or if your former tenants refuse to pay the amount owed, you may choose to escalate the problem to small claims court. 

Most small claims courts will accept disputes over security deposits. However, before proceeding with this route, make sure that it’s worth the cost, both in time and expenses. Successfully filing in small claims court requires quite a bit of work on your part, including preparing your case, organizing evidence, and showing up for hearings. You’ll also need to pay a filing fee whether you win the case or not. If you have more questions about the security deposit, or are wondering about investment properties in Greensboro, contact SLT Properties today.