Every North Dakota landlord should know the proper procedures for handling security deposits. Compliance is key, and every landlord should know what’s expected of them in a landlord-tenant relationship. Tenants also have a responsibility to perform their lease obligations.
Quick Facts for North Dakota
- Maximum Amount: Cannot exceed 1 month’s rent (with 2 exceptions)
- Duration for Return: 30 days after end of lease
- Penalty for Late Returns: 3 times refund amount
- Deadline to Claim Funds: 1 year
The Purpose of a Security Deposit
Security deposits serve as a safety net for landlords should they suffer financial losses caused by the tenant, who may have damaged the rental property, or breach the lease agreement, or skipped on the rent.
Security Deposit Maximum in North Dakota
A landlord cannot charge a security deposit amount that is more than one month’s rent, except in two instances (N.D.C.C. § 47-16-07.1. (1) (a) (b)):
- Two month’s rent if convicted of a felony offense a security deposit of up to
- Two months rent if tenant has a judgment against them for violating the terms of a previous rental agreement
A landlord can charge a tenant a pet security deposit of two thousand five hundred dollars or two months’ rent (N.D.C.C. § 47-16-07.1. (1)).
Security Deposit Interest
The landlord should place the security deposits in a federally insured interest-bearing savings or checking account (N.D.C.C. § 47-16-07.1. (1)). A landlord is not required to pay interest on security deposits if the tenant’s period of occupancy was less than nine months (N.D.C.C. § 47-16-07.1. (3) (c) ).
Returning the Security Deposit
North Dakota landlords must follow certain procedures when returning a tenant’s security deposit (N.D.C.C. § 47-16-07.1. (3)(c)):
- Written Itemized Statement: At the end of the tenancy, if the landlord intends to make any deductions from the deposit and earned interest, he/she must include a written, itemized list of each deduction, the reason for the deduction and the charge for each.
- Time-frame: Landlords must return a tenant’s security deposits and interest, if any, within 30 days of move-out.
- Failure to Claim Deposit: If a tenant fails to claim their security deposit within one year after the termination of the lease agreement, the security deposit is presumed abandoned (N.D.C.C. § 47-30.1-08).
Landlords can hold all, or a portion of a tenant’s security deposit and interest for the following reasons (N.D.C.C. § 47-16-07.1. (3) (a) (b) (c)):
- Unpaid Rent
- Damage in excess of normal wear and tear
- Cleaning costs and other repairs
Unlawful Withholding of Security Deposit
A landlord will pay a tenant three times the amount in damages if he/she withholds a security deposit without reasonable justification (N.D.C.C. § 47-16-07.1. (4).
Last Month’s Rent
A security deposit is not intended to be used to cover a tenant’s last month’s rent, but the provision can be established in the rental agreement.
How to Get a Full Refund of Security Deposit
A full security deposit can be returned to the tenant if there is no damage to the rental property, rent is paid in full, all charges in the rental agreement are covered.
Security Deposits and Tax Filing
What happens to the deposit at the end of the tenancy determines how it is treated for tax purposes.
- Accounting for Security Deposits: Security deposits are treated as either assets or liabilities when filing taxes. Tenants shouldn’t deduct security deposits as expenses and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant.
- Security Deposit Write-off: If a landlord withholds part or all of the security deposit for losses, that amount should be included as income when filing taxes. Forfeited deposits should be declared as income.
“Normal Wear and Tear” vs. Damage
- “Normal wear and tear” is deterioration that occurs as a result of everyday use of the rental unit, and without negligence, carelessness, accident, or misuse or abuse by the tenant.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value, normal function of the rental unit.
Property Change Ownership
If a rental property changes ownership, a North Dakota landlord transfer the security deposit and earned interest to the new owner (N.D.C.C. § 47-16-07.1. (5)).
Tips for North Dakota Landlords on the Right Practices for Security Deposits
- Charge tenants no more than one month’s rent, except if an individual is a convicted felon (two month’s rent), or if the individual has had a judgment against them for violating the terms of a previous rental agreement (two months rent).
- Provide tenants with an itemized list of deductions and the cost of each
- Return security deposits within 30 days of tenancy termination
- Withhold security deposits for unpaid rent, damage, cleaning costs and other costs related to a breach of the lease agreement
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Security deposits are an essential part of the rental process and serves to protect both landlords and tenants. It’s crucial for landlords and tenants to know how the security deposit law of the state applies to them. Landlords and tenants should stay informed and be aware of any changes to North Dakota’s security deposit law. The relevant North Dakota security deposit statute(s) can be found at N.D.C.C. § 47-16-07.1