New Jersey security deposit laws for landlords: 1.5 months, an interest account and double damages
New Jersey limits a security deposit to one and a half months' rent and treats it as the tenant's money held in trust. You must put it in an interest bearing account or a qualifying money market fund, send the tenant a written notice of where it is and what it earns within 30 days, and return it with the tenant's share of interest within 30 days after the lease ends. A court that finds for the tenant awards double the money due plus costs. The statutes are N.J.S.A. 46:8-19 to 46:8-26.
What is the New Jersey cap, and how fast can it rise?
N.J.S.A. 46:8-21.2 says an owner or lessee may not require more than 1.5 times one month's rent as security for a dwelling. When you collect an additional amount of security from a tenant, the amount collected annually as additional security cannot exceed 10 percent of the current security deposit. So a rent increase does not let you reset the deposit to 1.5 times the new rent in one step.
Example a made-up apartment rents for $1,600 a month. The cap is $2,400. The rent rises to $1,800, which would make a $2,700 cap, a $300 gap. Because the yearly increase in security may be at most 10 percent of the current $2,400 deposit, which is $240, the landlord can ask for $240 this year and the rest in later years.
The act applies to all rental premises used for dwelling purposes, except owner-occupied premises with not more than two rental units where the tenant has not given 30 days' written notice invoking the act (46:8-26).
Where does the money go and what must I tell the tenant?
Under 46:8-19, the deposit and the tenant's share of earnings stay the tenant's property, are held in trust and may not be mixed with your own property. If you receive deposits for 10 or more rental units, you must either invest them in shares of an insured money market fund based in New Jersey that meets the statute's conditions, or deposit them in a New Jersey bank, savings bank or savings and loan in an account with a variable rate similar to the average on active money market transaction accounts. Those with fewer than 10 units deposit the money in an insured New Jersey institution in an account bearing interest at the rate currently paid on time or savings deposits, unless the Commissioner of Banking and Insurance requires the first method.
You must notify each tenant in writing of the name and address of the institution, the type of account, the current interest rate and the amount, within 30 days of receiving the deposit, within 30 days of moving it, at each annual interest payment and within 30 days after a transfer of ownership. The interest belongs to the tenant, who gets it in cash or as a credit toward rent on the lease anniversary or on January 31 if the tenant was told in writing that January 31 is the payment date.
If you fail to invest or deposit the money, give the notice or pay the interest, the tenant may give written notice that the deposit plus interest at seven percent a year be applied toward rent due or to become due, and the tenant then owes no further security. If only the annual interest or notice was missed, the tenant must first give written notice and allow 30 days to fix it. Seasonal rentals of 125 consecutive days or less to a person with a permanent residence elsewhere are exempt from the investment rule.
When and how do I return it?
Under 46:8-21.1, within 30 days after the lease ends you must return the deposit plus the tenant's portion of interest, less charges expended under the lease, by personal delivery, registered mail or certified mail. The interest and any deductions must be itemized and the tenant notified the same way. No deductions may be made from the deposit of a tenant who remains in possession. Shorter periods apply when a tenant is displaced by fire, flood, condemnation or evacuation (five business days after a qualifying notice) or a lease ends under the domestic violence provision (15 business days), when the net sum must be available for return on demand.
Example a made-up tenant leaves with a $2,400 deposit and $96 of accrued interest. The landlord documents $450 to repaint a wall the tenant damaged and $120 of unpaid utilities the lease makes the tenant's. The itemized statement goes by certified mail within 30 days with $1,926 ($2,496 minus $570).
What does a violation cost?
In any action by the tenant for the return of money due under that section, the court, upon finding for the tenant, shall award double the amount of the money, together with full costs and, at the court's discretion, reasonable attorney fees. Small claims court (the Special Civil Part) has jurisdiction over deposit disputes up to $5,000 including penalties (46:8-21.4). Diverting trust funds with knowledge that they are trust funds is a disorderly persons offense with a fine of at least $200 or up to 30 days in jail, or both (46:8-25), and any waiver of the act by a lease is void (46:8-24). Where a state entity made the deposit for a tenant and the landlord willfully and intentionally withholds it, a civil penalty of $500 to $2,000 per offense can apply.
Example a made-up landlord wrongly keeps $700 of a deposit. A court finds for the tenant. The award is double, $1,400, plus costs, in place of the $700 that should have been returned.
What happens at a sale?
Under 46:8-20, when you convey the property or assign the lease, you must at the time of delivery of the deed, or within five days after, turn over the deposits plus the tenant's accrued interest to the buyer and notify each tenant by registered or certified mail of the turnover and the new owner's name and address. The buyer has the duty to obtain the deposits from the seller. Under 46:8-21 the buyer is responsible for proper investment, notices, interest and return whether or not the deposits were transferred. See security deposits when an apartment building is sold.
How DoorKeeping handles it
DoorKeeping records the deposit for each tenant in that property's own books, so the deposits are not mixed with the money of your other buildings. E-signed leases and the institution notices you send are filed as documents. The deposit stays in your account; DoorKeeping never holds it, and any payment waits for your one tap. It gives no legal advice.
Sources
Questions
- What is the maximum security deposit in New Jersey?
- One and a half times one month's rent, with later increases in security limited to 10 percent of the current deposit per year (N.J.S.A. 46:8-21.2).
- How long does a New Jersey landlord have to return a deposit?
- Within 30 days after the lease ends, by personal delivery, registered or certified mail, with the tenant's interest and an itemized list of deductions.
- Does a New Jersey landlord pay interest on a security deposit?
- Yes. The deposit goes in an interest bearing account or qualifying money market fund and the interest belongs to the tenant, paid yearly in cash or credited toward rent.
- What is the penalty for wrongly keeping a New Jersey deposit?
- A court finding for the tenant awards double the money due plus full costs, and may award attorney fees.