Security deposit laws in New Jersey are fairly tenant-friendly, with a lot of protections for renters. Most notably, New Jersey landlords are tasked with storing deposits in a very specific manner. (Tenants are even allowed to decide how the interest generated by their deposit is spent.) Landlords are also limited to how much they can charge for a deposit and must return the money within 30 days of the lease’s end.
Security deposits are limited to one-and-a-half times the monthly rent
New Jersey law bans landlords from charging more than one-and-a-half times the monthly rent for a security deposit. When the rent goes up, a landlord can request an additional amount from the tenant so the security deposit is consistent with the new rent. However, this amount may not be more than 10% of the current deposit, regardless of how much the rent increased.1
There are strict requirements for how landlords store deposits
The state laws that govern how a landlord must store and maintain security deposits are long and complex,2 but here are the basics.
First, a tenant is entitled to all of the interest earned on a security deposit. If the tenant chooses, they may ask that the interest be applied to future rent on an annual basis. Or, they may ask for an annual cash payout of the interest.
If a landlord owns fewer than 10 rental units, they must place the security deposit in a bank account that bears interest equal to or greater than the typical interest rate on “time or savings” deposits (which essentially means a money market or certificate of deposit account).
If a landlord owns 10 or more rental units, they must place the security deposit in a money market account that is based in New Jersey and has a maturity date of one year or less.
If a landlord fails to store the security deposit properly, the tenant has the right to inform the landlord that they want the deposit to be applied toward future rent. The landlord cannot ask the tenant for an additional deposit, either.
Landlords must tell tenants where their deposit is being held
A landlord must provide a tenant with a written notice that includes where the funds are being held, the amount of the deposit, the type of account, and the interest rate. The landlord must deliver a new notice in each of the following situations:
- Within 30 days of receiving the deposit
- Within 30 days of moving the money to a different account (if they choose to do so)
- Annually, when interest payments are made
- Within 30 days of selling the rental property in question
If a landlord fails to notify the tenant of an annual interest payment—or fails to actually pay out the interest if the tenant chose that option—the tenant must send a letter to the landlord informing them of this oversight.
After receiving the letter, the landlord has 30 days to comply with the law. If they fail to do so, the tenant gets the same benefits as if the deposit was never properly made—that is, they can ask to apply their deposit money to future rent, and the landlord cannot ask for an additional deposit.
Landlords must return the security deposit within 30 days
When the lease ends, a landlord has 30 days to return the unused portion of a security deposit to the tenant. They must deliver it either personally or by registered or certified mail. The landlord must include a payout of any interest earned up to that point, as well as an itemized list of any deductions. There is no procedure in place for the tenant and landlord to do a walk-through of the apartment prior to the lease’s end, nor is a tenant required to formally tell a landlord his new forwarding address (although practically speaking, it might be wise to do so).
In certain situations, the return of the unused deposit must happen faster. If a tenant is displaced by a flood or fire—or if the building the tenant is living in is deemed unsafe, uninhabitable, or is condemned—the landlord has only five days to return a deposit. If a tenant is the victim of domestic violence and this is why they ended their lease, the landlord has 15 days to return the deposit.
Interestingly, a landlord may not make deductions from a security deposit until after a tenant has vacated the property, even if the tenant is “holding over” past the end of the lease. The deductions can only be made once the apartment is vacant.
If a landlord fails to comply with these rules and the tenant takes them to court and wins, the landlord is subject to damages in the amount of double the security deposit, plus the tenant’s court costs and fees.3
The law is vague about acceptable reasons for deductions
New Jersey statutes provide very little guidance about when a landlord may withhold money from a security deposit. The law states only that they may do so to cover “any charges expended in accordance with the terms of a contract, lease, or agreement.”3
This essentially means “look to the lease.” A lease contains a requirement to pay rent, which means a landlord can withhold a security deposit to cover unpaid rent. Generally, a lease also requires that a tenant utilize the rental property in a reasonable and diligent manner. Any actions by the tenant that went against this requirement (like failing to maintain the property) could be considered a breach of the lease and allow the landlord to recoup damages. New Jersey courts that have considered this issue have generally settled on the idea that landlords may withhold money for damages beyond “normal wear and tear.”4
If a landlord wrongfully withholds funds, they are subject to the same penalties noted above—double damages, an inability to keep the deposit, and attorney fees.3
Tenants may sue in small claims court
If the security deposit is less than $5,000, a tenant may sue the landlord in small claims court.5 This is a benefit to the tenant, as small claims court is typically friendly to litigants without lawyers—and easier to navigate than housing or normal civil courts.
Make sure your lease doesn’t include any unenforceable terms—and that both landlord and tenant understand their responsibilities under the rental agreement.
The information provided on this website does not, and is not intended to, constitute legal advice.