Security deposits in New Jersey: limits, interest and the 30-day rule

Who the law covers

New Jersey's Rent Security Deposit Act covers most residential rentals: apartments, houses and rented condos. The main exception is an owner-occupied building with no more than two rental units (N.J.S.A. 46:8-26). Even then, a tenant can bring the building under the Act by giving the landlord 30 days' written notice.

Seasonal rentals of 125 consecutive days or less, rented to someone with a permanent home elsewhere, are exempt from the banking and investment rules, though the landlord has the burden of proving the rental really is seasonal.

How much a landlord can charge

Under N.J.S.A. 46:8-21.2, a landlord may not require more than one and a half times one month's rent as security. On a $2,000-a-month apartment, that's a $3,000 maximum.

If the landlord collects additional security during the tenancy, the increase in any year can't be more than 10% of the current deposit. The Department of Community Affairs (DCA) also notes that a landlord can't demand a new deposit while the tenant remains in the unit.

Where the money must be kept

The deposit belongs to the tenant and is held in trust. It can't be mixed with the landlord's own money. Under N.J.S.A. 46:8-19, landlords with 10 or more units must use an insured New Jersey money market fund or a variable-rate account at an insured New Jersey institution. Landlords with fewer than 10 units must use an interest-bearing account at an insured New Jersey bank or savings institution.

Interest belongs to the tenant. It must be paid each year in cash or credited toward rent on the lease renewal or anniversary date, or on January 31 if the tenant was told in writing that would be the schedule.

The 30-day notice and what happens if it's missing

Within 30 days of receiving the deposit, the landlord must give the tenant written notice of the bank's name and address, the type of account, the current interest rate and the amount deposited. The same notice is required within 30 days of moving the money to a new account or when the property changes hands, and with each annual interest payment.

If the landlord fails to deposit the money properly or fails to give the notice, the tenant can give written notice asking that the deposit plus 7% annual interest be applied to rent. For a missed annual interest payment or annual notice, the tenant first has to give the landlord 30 days to fix it. After the deposit has been applied to rent this way, the landlord can't demand a new deposit.

Getting the deposit back

Within 30 days after the lease ends, the landlord must return the deposit and interest, minus any lawful deductions, by personal delivery or by registered or certified mail, along with an itemized list of the interest and deductions (N.J.S.A. 46:8-21.1). A landlord can deduct for unpaid rent and for damage beyond ordinary wear and tear, but no deductions can be made while the tenant is still living there.

Shorter deadlines apply in some situations. If a tenant is displaced by fire, flood, condemnation or evacuation, the landlord must make the deposit available within five business days of a request. When a domestic violence victim ends a lease under New Jersey law, the deposit is due within 15 business days.

• Take dated photos or video at move-in and move-out
• Give the landlord your forwarding address in writing
• Keep copies of the lease, the bank notice and rent receipts
• Normal wear and tear (faded paint, light carpet wear) is not a proper deduction

Double damages and other remedies

If a landlord wrongfully withholds a deposit, the tenant can sue. Under N.J.S.A. 46:8-21.1, the court awards double the amount wrongfully withheld, plus full court costs, and the DCA notes that reasonable attorney's fees may be awarded at the court's discretion.

Diverting a security deposit for another purpose is a disorderly persons offense. If a government agency paid the deposit for a tenant, the state can seek civil penalties of $500 to $2,000 per offense against a landlord who willfully withholds it.

Practical points for landlords, and when the building is sold

Most deposit disputes come from missing paperwork rather than bad intent. The DCA bulletin points out that a landlord can't deduct administrative fees from the deposit or treat it as the landlord's own asset, and that the bank notice has to go out again with each annual interest payment.

Keep a move-in checklist signed by the tenant, dated photos, receipts for repairs and a copy of each bank notice. Send the itemized list and any refund by personal delivery, certified mail or registered mail within the 30-day window, and keep proof of mailing. If the tenant owes more than the deposit covers, the landlord can sue for the difference.

Special rules apply when a domestic violence victim ends a lease under New Jersey law: the landlord must send written notice within three business days that the deposit is available, and return it within 15 business days. Deposits that go unclaimed for 30 days must be put back in an interest-bearing account.

If you sell the building, remember that a sale doesn't wipe out the tenant's deposit. The DCA explains that the former owner must transfer the deposit and interest to the new owner within five days of the deed and notify the tenant by registered or certified mail. The new owner is responsible for the deposit either way and must send its own notice within 30 days of taking over.

Tenants should know this too: if your building changes hands, the new owner is responsible for your deposit even if the old owner never handed it over, so keep your original receipt and bank notice.