Security Deposit Law in New Jersey

New Jersey law sets forth how landlords collect, hold, and return security deposits. Keeping a security deposit improperly can result in paying “double” the deposit to the tenant, court costs, and attorney fees.

Landlords risk heavy penalties for not following security deposit law in New Jersey.

Tenants in New Jersey can receive double the amount of improperly withheld security deposits, as well as court costs and attorney fees.

The Rent Security Deposit Act sets out the rules for how landlords must collect, maintain, and return deposits.

What is a security deposit?

A security deposit is a refundable payment from the tenant to compensate the landlord if the tenant does not pay rent, causes excessive damage, or breaches the lease.

Who owns the security deposit?

Tenants continue own the security deposit after transferring it to the landlord. N.J.S.A 46:8-19 (1).

Tenants also own interest earned while the landlord has the security deposit. Interest must be paid in cash or credited to rent at one of the following times (N.J.SA. 46:8-19(1)(c)(5)) :
• renewal date of the lease;
• anniversary date of the lease; or
• January 31st if the tenant was given written notice.

Properties the Rent Security Deposit Act Applies To

The Rent Security Deposit Act applies to residential rental units. This includes single-family, multi-family, and “mixed use” property.

The only exception is owner occupied houses with not more than two rental units beyond the occupied unit. This exception applies to two or three-family where the landlord resides in one of the units. N.J.S.A. 46:8-26.

The Rent Security Deposit Act applies even to these owner-occupied buildings if the tenant requests the landlord comply in writing. N.J.S.A. 46:8-26.

Commercial leases are not subject to the Rent Security Deposit Act, and disputes regarding commercial security deposits largely turn on contract law.

The Rent Security Deposit Act also does not apply to seasonal use or rentals . “Seasonal rental” might include renting a beach house for 60-days or an Air B&B stay.

How much can a landlord charge a tenant for a security deposit in New Jersey?

The maximum amount of a security deposit is one and one-half months’ rent.

Landlords at most can increase the currently held security deposit 10% each year. N.J.S.A. 46:8-21.2 explains:

An owner or lessee may not require more than a sum equal to 1 1/2 times 1 month’s rental according to the terms of contract, lease, or agreement as a security for the use or rental of real property used for dwelling purposes. Whenever an owner or lessee collects from a tenant an additional amount of security deposit, the amount collected annually as additional security shall not be greater than 10 percent of the current security deposit.

Landlords are unable to collect both first and last month’s rent for a security deposit since that would be two months (beyond the allowable one and one-half months’ rent). N.J.S.A. 46:8-21.2.

Landlords cannot “add more” security deposit for special circumstances, such as a pet or cleaning. Any refundable fee based on the tenant complying with the lease is a security deposit. A special purpose does not change this.

Landlords can charge 1-time non-refundable fees at the beginning of the lease, for example, for a specific repair, or cleaning.

Tenants are not allowed to consent to a higher security deposit. Any contract, lease, or agreement waiving a right under Rent Security Deposit Act is invalid. N.J.S.A. 46:8-24

Do landlords pay tenants interest on the security deposit?

Landlords must pay tenants the interest earned while holding the security deposit. Tenants may have the interest credited towards rent.

Can a landlord collect additional security deposit for a pet?

Landlords in New Jersey cannot collect additional security deposit for a pets.

Landlords may charge tenants a nonrefundable pet fee.

How must landlords in New Jersey to hold the security deposit?

Security deposits must be held in a bank account that pays interest. Landlords may not mix a security deposit with their personal account. N.J.S.A. 46:8-19 (“shall not be mingled with the personal property or become an asset of the person receiving the same.”)

For properties with 10 or more units, security deposits must be held in either (N.J.S.A. 46:8-19(a)(1)):

  • money market fund established by a company based in New Jersey; or
  • federally insured bank in New Jersey with rate of interest set at least quarterly and similar to the average rate of interest paid by the bank on money market accounts.

For properties with under 10 units, the deposit must be held in a “State or federally chartered bank, savings bank or savings and loan association in this State insured by an agency of the federal government in an account bearing interest at the rate currently paid by such institutions and associations on time or savings deposits.” N.J.S.A. 46:8-19(b).

Landlords must given written notice to the tenant within 30-days concerning how the security deposit is being held. N.J.S.A. 46:8-19(b).

What Are A Landlords Written Notice Requirements Under the SDA?

Tenants are entitled to receive written notice about their deposits for one of the following reasons (N.J.S.A. 46:8-19c):

  1. 30-days of receiving the security deposit from the tenant;
  2. 30-days of moving where the deposit is held – from one bank to another, or one account to another – except it’s less than 2-months from the time where annual interest is paid;
  3. Every year when interest is paid to the tenant
  4. 30-days of transerring ownership of the property

The written notice should include:

  1. name and address or the bank or investment company,
  2. Type of account where the deposit is held,
  3. Rate of interest of the account,
  4. The amount deposited.

What are the penalties for failure to comply with security deposit procedures?

Failing to comply with security deposit procedures results in two penalties in two situations: (1) failure to provide initial notice or make the deposit within 30-days; OR (2) the failure to pay and/or give written notice for. (N.J.S.A. 46:8-19c):

Failure to Provie Initial Notice Or Make The Deposit Correctly: Tenant may submit written notice that the security deposit plus 7% on the security deposit shall be applied to rent. The landlord can no longer

Failure To Pay Annual Interest and/or Notice: The penalty in this case is that the security deposit plus the actual interest earned is applied to rent, and the landlord can no longer request security deposit. However, the landlord has a 30-day period to cure the defect (as long as the notice doesn’t state that there was a change in the account where the deposit as being held). The landlord can cure the default by paying the interest or giving the appropriate notice.

Courts have interpreted the security deposit statute to require “substantial compliance) instead of full compliance, and technical violations do not give rise to the remedy, particularly with landlords acting in good faith.

How long until a landlord must return a tenant’s security deposit in New Jersey?

Security deposits must be returned within 30 days after the tenant surrenders the rental property to the landlord (returned the keys and vacated the property). N.J.S.A. 46:8-21.1 states a security deposit must be returned “within 30-days after the termination of the tenant’s lease.”

Interest earned on the security deposit must be returned at the same time.

Landlords must provide an itemized statement of the interest or earnings and any deductions when returning the security deposit. The deposit must be made available for the tenant for 30-days. If the tenant does not pick up the deposit, the landlord needs to re-invest the deposit.

There are several exceptions:

  • within 5 days in case of fire, flood, condemnation, or evacuation 
  • Within 5 days if a public official posts a notice prohibiting occupancy 
  • Within 5 days if a building inspector, in consultation with a relocation officer, certifies within 48-hours that a displacement will continue longer than 7 days;
  • Within 15-days if a lease is terminated due to domestic violence (N.J.S.A. 46:8-9.6)

Tenants that were returned their security deposit due to being displaced, and then resume, must give 1/3 of the security deposit back immediately, 1/3 back in 30-days, and 1/3 in 60-days. Failure to make these payments can result in an action for possession in the same manner as non-payment of rent. N.J.S.A. 46:8-21.1.

When can a landlord keep a tenant’s security deposit in New Jersey?

Landlords in New Jersey are entitled to keep security deposits in three situations:

  • Unpaid rent; 
  • Property damage beyond “ordinary wear and tear”; or 
  • Breaches of the lease

Deductions may only make deductions from security deposits after the tenant has moved out. N.J.S.A. 46:8-21.1 states “no deductions shall be made from a security deposit of a tenant who remains in possession of the rental premises.”

Even if the tenant is behind on rent, damages the property, or racks up late fees – no deductions until the tenant leaves.

What are damages beyond “ordinary wear and tear” that landlords can withhold rent on?

New Jersey law does not define the ordinary wear and tear.

Judges decide on case-by-case basis whether property damage is beyond normal use. Courts follow certain patterns in making this decision.

“Ordinary wear and tear” damage occurs from the normal and careful use of the property. Fade paint, loose tiles, cleaning, and leaky faucets might treated as normal, while large holes in walls or fire damage might as excessive. The court’s decision is “fact sensitive”.

How will a landlord be penalized for improperly withholding a security deposit?

Landlords receive penalties for wrongfully keeping a security deposit including paying double the amount of the portion of the deposit withheld wrongfully, court costs, and attorney fees.

N.J.S.A. 4:68-21.1(c) states:

In any action by a tenant, licensee, executor, administrator or surviving spouse, or other person acting on behalf of a tenant, licensee, executor, administrator or surviving spouse, for the return of moneys due under this section, the court upon finding for the tenant, licensee, executor, administrator or surviving spouse shall award recovery of double the amount of said moneys, together with full costs of any action and, in the court’s discretion, reasonable attorney’s fees.

Landlords must notify the tenant within 30-days in writing with an itemized list of damages.
This 30-day period gives landlord time to walk through the property and determine repair costs.

Landlords should carefully assess whether to hold the security deposit and collect evidence such as photographs and repair quotes. The landlord (not the tenant) must prove to the amount withheld was proper.

Understanding the penalties can help landlords make the best decision:

  • “Double” Amount Wrongfully Withheld: Landlords pay double the “net” amount wrongfully withheld after accounting. “Net amount” is the amount the landlord actually withheld minus the amount the landlord was legally entitled to keep. The doubling penalty is mandatory.
  • Attorney’s Fees: Reasonable hourly rate for the services multiplied by a reasonable amount of hours spent on the case.
  • Costs: May include filing fees and charges for serving summons.

What happens to a security deposit when the property sells?

Landlords that sell their property must transfer the security deposit, and any accrued interest, to the new owner within 5 days. The landlord must notify the tenant of the transfer. N.J.S.A. 46:8-20 & N.J.S.A. 46:8-21.

The new owner is then responsible for returning the security deposit. The new owner also has the responsibility to obtain the security deposit.

How does a tenant make a landlord return a security deposit?

Tenants asking for $5,000 or less (not including attorney fees or legal costs) may file a complaint against the landlord Small Claims Court in the Special Civil Part. N.J.S.A. 46:8-21.4 .

The $5,000 maximum does not include costs or attorneys fees’, but does include the “double” penalty mentioned above.

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