In North Dakota, the collection and return of security deposits are regulated under ND Cent. Code 47-16-07.1 These laws provide a set of rules that North Dakota landlords and property managers have to follow to protect all parties.
Maximum Security Deposit Charge in North Dakota
In North Dakota, the standard security deposit limit is one month’s rent. However, if the tenant is a convicted felon or has a history of defaulting on a previous lease, the limit rises to two months’ rent. North Dakota laws require landlords to provide interest on held security deposits unless the lease term is less than nine months.
Additional Pet Deposits. Under North Dakota’s law, pet deposits may not exceed the greater of $2,500 or two months’ rent. People with disabilities who use service animals or companion animals are entitled to full and equal access to housing. Thus, the tenant may not be discriminated against and the landlord may not require the tenant to pay extra to have a service animal. If the service animal causes damage to the rental unit, the tenant is liable to pay for any damages.
The Federal Fair Housing Act requires housing facilities to allow tenants who use service dogs and emotional support animals to have an equal opportunity to use and enjoy their home.
Move-In Checklist Requirement in North Dakota
If a landlord in North Dakota collects a security deposit for a rental agreement, they are required to provide a detailed statement regrading the condition of the premises at the time of entering the rental agreement. This move-in checklist must be signed by both the tenant and landlord and will be used to assess and determine deductions at the end of the lease.
Allowable Deductions on Security Deposits in North Dakota
The landlord may use the security deposit and accrued interest to make deductions only after the tenant has vacated the premises. The security deposit should be used to cover:
- Unpaid rent.
- Costs of damage caused by the tenant’s failure to comply with obligations as a tenant but not those considered to be standard wear and tear.
- Cleaning/repair costs required to return the property to its original condition.
Can the deposit be used by the tenant as last month’s rent? The deposit may be used as the last month’s rent only if both parties agree in the lease. Otherwise, the security deposit should be handled separately from any rent balance left outstanding.
“Normal Wear and Tear” vs. Damage in North Dakota
- “Normal Wear and Tear” is defined as deterioration that occurs as a result of use for which the rental unit is intended and without negligence, carelessness, accident, or misuse or abuse of the premises or contents by the tenant or members of his household, or their invitees or guests. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “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. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
Check out our article on wear and tear vs. damage to get a better idea of the difference.
The landlord can only charge the cost of repairs if the damage was caused by the failure of the tenant to comply with specific obligations. To comply, the tenant must:
- Comply with all obligations primarily imposed upon tenants by applicable provisions of building and housing codes materially affecting health and safety.
- Keep that part of the premises that the tenant occupies and uses as clean and safe as the condition of the premises permit.
- Keep all plumbing fixtures in the dwelling unit or used by the tenant as clean as their condition permits.
- Use in a reasonable manner all electrical, plumbing, sanitary, heating, ventilating, air-conditioning, and other facilities and appliances including elevators in the premises.
- Periodically remove all ashes, garbage, rubbish, and other waste from the tenant’s dwelling unit, and dispose of them in a clean and safe manner.
- Not deliberately or negligently destroy, deface, damage, impair, or remove any part of the premises or knowingly permit any person to do so.
- Conduct oneself and require other persons on the premises with the tenant’s consent to conduct themselves in a manner that will not disturb the tenant’s neighbors’ peaceful enjoyment of the premises.
If the damage to the premises was caused by the tenant, the tenant’s guests, or pets then the landlord may take the cost of repairing the damage from the security deposit.
Returning Security Deposits in North Dakota
Time Frame: A North Dakota landlord has 30 days to return any unused portion of the security deposit along with an itemized list of damages deducted and a written notice. This written notice must include a statement of the amount due to the landlord and the refund due to the tenant. This period begins on the date of termination presented in the lease agreement, during which written notice should be mailed or delivered to the tenant’s forwarding address.
If the tenant does not claim the returned funds within one year of lease termination, they forfeit the right to reclaim the funds.
Failure to Return Security Deposit as Required: If the landlord refuses or fails to return the security deposit within the 30 day limit, the tenant stands to recover up to the triple the withheld funds, plus any legal fees associated with recovering the deposit in court. The tenant may sue the landlord in Small Claims Court up to $15,000.
Security Deposits and Tax Filing in North Dakota
Whether a security deposit will be treated as taxable or not depends on if the deposit is used or returned.
Taxable Income: Security deposits are not automatically considered income upon collection at the beginning of tenancy. They only become taxable income when the landlord no longer has any obligation to refund them (such as for settling damages incurred). At this point they may also qualify as a write-off for tax purposes as well.
Reporting Security Deposit as Income: Whether or not security deposit should be reported as income and when to do so will depend on what it is being applied to or used as. Below are three simple rules the IRS has suggested:
- If the deposit is forfeited due to a breach of the lease or applied to unpaid rent, then the amount kept should be declared as income in the year it was forfeited or applied.
- If the security deposit is used to cover expenses that are chargeable to it, then the landlord should only include the part of the deposit used as income if the landlord includes the cost of repairs as expenses. If the landlord doesn’t include them as expenses as a matter of practice, then there’s no need to include the part of the deposit kept to cover them as income.
- There is an agreement between the parties to use the deposit or part of it as the final month’s rent, then the landlord should include it as income when the same is received.
Additional Rules & Regulations in North Dakota
Receipt Requirements: The landlord is not required to provide a receipt for the security deposit in North Dakota.
Security Deposit Holdings in North Dakota: North Dakota laws do not require landlords to hold security deposits separate from other funds, but they do require that all funds are held in federally regulated financial institutions.
Security Deposit Interest in North Dakota: North Dakota laws require landlords to provide interest on held security deposits unless the lease term is less than nine months.
New Property Owner’s Responsibility: If the original landlord decides to sell or transfer ownership of the rental property, the original landlord will not be relieved of liability until the security deposit funds and accrued interest is transferred to the new buyer. Once the transfer is complete, the new buyer will assume the responsibility.
For additional questions about security deposits in North Dakota, please refer to the official state legislation, ND Cent. Code 47-16-07.1.