The security deposit is one of the most vital parts of a rental unit experience. As a North Dakota landlord, it’s your responsibility to know how to handle the security deposit. For example, a landlord must know what amount to charge, how to store the security deposit and when to return it. After all, ignorance of the law is never a legal defense. You cannot claim you didn't know the elements of security deposit law or landlord-tenant law in general.
The security deposit law is contained in the statewide landlord-tenant law. It’s vital to follow these laws to keep your rental property legally compliant and save you from unnecessary complications. Landlords and tenants have multiple rules to follow.
The following are answers to common questions of landlords and tenants regarding security deposits in the state of North Dakota.
What Is a Security Deposit?
A security deposit is the amount of money—other than rent—that a tenant pays before signing a lease or rental agreement. Security deposits aren't required by law, but most landlords still ask for to have a security deposit in their rental agreement.
The purpose of the security deposit is to cushion landlords against a myriad of potential financial liabilities that may arise during a tenancy of a rental unit.
These financial liabilities may include unpaid rent, the tenant's abandonment of the unit and excessive property damage caused by the tenant. In these cases, the lease agreement has been broken and the landlord may take the income loss from the security deposit.
What Is the Maximum Amount of a Security Deposit a Landlord Can Ask Their ND Tenant?
As a landlord in North Dakota, the security deposit you charge tenants cannot exceed the rent of one month. Two exceptions, however, exist.
One, if the tenant has a felony offense involving a security deposit, you can charge them the equivalent of two months’ rent. The same will also apply to tenants that have a previous history of lease violations. (N.D.C.C. § 47-16-07.1. (1) (a) (b))
Can a Landlord in North Dakota Charge a Pet Deposit?
Yes, you can. But the security deposit must not exceed $2,500 or the equivalent of 2 months’ rent. (N.D.C.C. § 47-16-07.1. (1)).
How Should You Store a Tenant’s Security Deposit?
Once you receive the security deposit, you must store it in an interest-accruing account or a checking account. The account must also be federally insured.
You must then pay interest on security deposits to tenants who have rented the property for more than 9 months. (N.D.C.C. § 47-16-07.1. (3) (c) ).
Can the Tenant Use the Security Deposit as Last Month’s Rent?
Not really, the landlord cannot do this. The security deposit in North Dakota is not meant to cover one month's rent. Naturally, the purpose of a security deposit is to insure a landlord against possible financial liabilities a tenant may cause in the rental property during a tenancy period.
The only exception to this rule for security deposits is if the provision is established in the lease agreement, in which case the landlord can use the security deposit for one month's rent.
What Instances Can Lead to the Partial Return of the Security Deposit?
As a landlord, you have a right to withhold part of the security deposit in certain circumstances. The following are examples of such circumstances.
- Cover unpaid utility bills: naturally, a tenant will have some utility bills in their name upon lease signing. When moving out, they will need to have cleared them. Sadly, some tenants choose not to, in which case you can use the security deposit
- Cover excessive cleaning costs: a tenant is usually required to leave their rented premises in the same way they found it, other than normal wear and tear. So, if a tenant leaves the property in an extreme case of uncleanliness, you can use all or part of their security deposit to cover the cleaning caused by the tenant
- Cover lost rental income: this typically occurs when a tenant abandons their rented unit. Again, you may cover your losses by making appropriate deductions from their security deposit. Breaking a lease follows its own procedures, however
- Cover losses in rent payments: a key responsibility tenants have is to pay their rent. If a tenant violates this rental responsibility, you may be entitled to part or all of their security deposit, and the potential of an eviction
Furthermore, landlords may be able to make deductions to a security deposit in order to cover excessive property damage. Excessive property damage is usually defined as anything that exceeds normal wear and tear.
Excessive Property Damage:
- Lost keys
- Pet scratches on walls/floors
- Flea infestations from pets
- Stains and/or burns on the floor
- Broken or missing blinds
- Broken appliances
- Large holes in the walls and/or windows
Normal Wear & Tear:
- Dirt build-up on windows
- Hinges on cabinets worn or slightly stuck
- Cracked windows or doors due to old frames
- Scuffed wood floors
- Carpet and/or tile is worn down and dirty
- Loose wallpaper
- Faded paint around the unit
When Should a Landlord Return a Security Deposit?
Landlords must follow certain procedures when they return the security deposit. (N.D.C.C. § 47-16-07.1. (3)(c)).
One, if making deductions, you must create an itemized list of the deductions for the security deposit. This must be written and must include the charges and deductions for each item. If it's contested by the tenant, it may be settled in the small claims court.
Two, you must return the security deposit within a certain timeframe. Specifically, you must do so within 30 days after moving out.
And three, you must declare the security deposit abandoned if the tenant fails to claim it within a year after moving out. (N.D.C.C. § 47-30.1-08).
What Happens If You Unlawfully Withhold a Tenant’s Security Deposit?
There are repercussions to withholding security deposits if there is no reasonable justification. Usually, you’ll be liable for paying up to 3X the amount withheld in damages. (N.D.C.C. § 47-16-07.1. (4). It's beneficial for everyone involved to have it returned.
What Happens in Case the Property Changes Hands?
If you decide to sell the property midway through the lease, then you’ll have to transfer the security deposit (plus any interest earned) to the incoming landlord. (N.D.C.C. § 47-16-07.1. (5)).
Do You Have to Provide Your North Dakota Tenant a Written Notice Acknowledging the Receipt of Their Security Deposit?
In some states, landlords must provide their tenants with a receipt for security deposits. This is, however, not the case in the state of North Dakota as there is no statute regarding the receipt of the security deposit.
Is There a Requirement for Record-keeping for Security Deposit Withholdings?
No. In North Dakota, there is no law specifying record-keeping requirements for a rental property's security deposit.
Do Tenants Have a Right to a Walk-through Inspection in North Dakota?
A walk-through inspection helps the documentation of the property’s condition. Essentially, it helps answer one fundamental question: did the tenant cause excessive property damage rather than just normal wear and tear?
In North Dakota, tenants don’t have a right to a walk-through inspection, even when the security deposit is on the line. This means that their presence isn’t necessary during the inspection process. As such, landlords can have a clear view of what they might need to take out of security deposits.
When it comes to security deposits, it’s essential for landlords to have a thorough understanding of the laws in place. By knowing your rights as a landlord and the rights of your tenants, you will avoid the stress of legal complications with the security deposit.
Disclaimer: The information herein is only meant to be informational only. For expert help, please consult an experienced property management company like TruHome Property Solutions.