Orange County court bars Chapel Hill landlord from taking security deposits

Posted by John Murawski on April 10, 2014 

An Orange County Superior Court judge effectively barred a Chapel Hill landlord from requiring security deposits from student renters in Chapel Hill and Durham.

In a lawsuit filed by the N.C. Attorney General’s office, Judge R. Allen Baddour Jr. ruled on Wednesday that landlord James Ware Kelly III and his company, Ware Investments, can’t accept security deposits unless his rental business is bonded and insured. Because Kelly had recently claimed bankruptcy, it is not likely he could obtain a bond.

The judge’s preliminary injunction also said Kelly can’t deduct any expenses from existing security deposits that aren’t related to damages and losses caused by the tenant who paid the deposit.

The case is still ongoing and the AG’s office is seeking refunds for the student renters, some of whom sued Kelly and won in court but have not received their money. Kelly filed for Chapter 11 bankruptcy in 2010, thwarting his tenants’ recovery efforts, but the bankruptcy court dismissed his claim in 2012.

According to the AG’s 2013 lawsuit, Kelly did not place security deposits in a designated trust account, as state law requires, and instead commingled the funds with his regular business accounts.

The AG’s suit alleged that, when students moved out, Kelly withheld deposits without providing a written record detailing how he used their deposits, as required by the N.C. Tenant Security Deposit Act.

Kelly rents to about two dozen tenants in Chapel Hill and Durham; the superior court ordered him to identify all his tenants from the past five years. The AG’s suit lists several examples of deposits totaling $550, $1,410 and $1,050. In the latter case, Kelly withheld $995.35, claiming the tenant and his roommates owed a water bill.

Staff writer John Murawski

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