Permitted Uses of Security Deposits

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

  • Nonpayment of rent that is due.

  • Damage to the premises (other than damage due to “ordinary wear and tear”).

  • 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).

  • Unpaid bills from the tenant’s occupancy which become a lien against the property.

  • The cost of re-renting the premises after a breach of the lease by the tenant.

  • Costs of removal and storage of tenant’s personal property.

  • Court costs and legal fees in connection with terminating a tenancy.

Some the most common controversy over a tenant deposit is regarding the second bullet point 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. This is partly because it is on a case by case basis. There is a lot of unknown area involved to determine what is “normal wear and tear” and what is more than “normal” making it negligent damage. 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 Tenants. Here are some examples of both as outlined in the publication:

Damage due to “normal wear and tear”:

  • Worn, old or dirty carpeting

  • Faded or cracked paint

  • Dirty windows

  • Dirty walls

  • Frayed or broken curtain or blind strings

  • Leaking faucets or toilets

  • Small nail holes in walls (from picture hanging)

  • Worn lavatory basin

  • Burned out range heating elements

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

  • Marker marks on walls

  • Large holes in walls

  • Broken windows

  • Destroyed carpet

  • Unauthorized paint colors

  • Broken counter tops

  • Filthy appliances (such as ovens and refrigerators) requiring extraordinary cleaning

  • Exceptionally filthy premises requiring extra cleaning

Landlords and property managers may not use the tenant 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 tenant 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 from these situations are avoided by utilizing a move-in checklist or inspection and before pictures to document the condition of the property when the tenant took occupancy. These are both task items Flagship Property Management takes very serious and completes on every single property. This will help curb the defense by the tenant, “That was like that when I moved in.” It also helps to set the expectation up front when signing the lease agreement with the tenant to explain what they will be held responsible for maintaining the property. 

To obtain more information regarding the tenant Security Deposit Act or the Landlord and Tenant Law, you can visit the North Carolina Real Estate Commission website at for a list of frequently asked questions and answers regarding tenant security deposits and for general questions and answers regarding renting residential real estate.