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An Overview of Security Deposit Law in New Jersey and New York
March 25, 2015 Posted in Landlord/Tenant Law Share
Security deposits are an important form of insurance that a tenant will pay over to a landlord, for the landlord to hold in trust, at the start of a lease term to ensure that the tenant complies with the terms of the lease agreement. The rules regarding security deposit procedures are governed by state law. New Jersey and New York have different laws concerning the maximum amount that can be accepted as a security deposit, how the payment is held in escrow, and how the security deposit is processed and returned upon the termination of a tenancy. This article gives a general overview on the security deposit laws in the two states.
In residential tenancies in New Jersey, in circumstances where the landlord owns three or more rental units, the maximum amount that a landlord can ask for in security is 1.5 times the monthly rent pursuant to N.J.S.A 46:8-21.2. Once the security deposit is received by the landlord, they must deposit the money in an interest bearing account in a New Jersey bank. The landlord must notify the tenant of the name and address of the bank within thirty days of receipt of the funds from the tenant. The landlord must also pay out any interest earned on the security deposit every year, and upon providing the interest payment again advise of the banking institution in which the security deposit has been deposited. Per N.J.S.A. 46:8-19, if the landlord fails to give to the tenant proper notice of deposit, the tenant has the right to request that the security deposit be put towards rent and that the landlord may not seek another security deposit during the tenant’s residence. Per. N.J.S.A. 46:8-19(c)(4), if the landlord fails to pay out the annual interest or advise the bank where the security funds have been deposited, upon receipt of a notice from the tenant the landlord shall be allowed thirty (30) days from the mailing date or hand delivery date of the notice to comply with the annual interest payment or annual notice or both. Additionally, New Jersey has a stringent timeline for the return of the security deposit at the end of the tenancy and harsh penalties for the failure to comply. The landlord must return the security deposit to the tenant within 30 days of move out. Otherwise, the tenant is entitled to sue the landlord for the return of the security deposit. In such a lawsuit, the court can award the tenant double the security deposit, plus the costs of suit and reasonable attorney’s fees. Different rules may apply for landlords of properties with less than ten (10) units.
New York’s laws on security deposits can be found at N.Y. General Obligations Law 7-103 to 7-108. There is no statutory statewide limit as to the maximum amount a landlord can charge a tenant as a security deposit. In New York, a security deposit for the rental of a unit in a building containing six or more rental units must be deposited in an interest bearing account at the prevailing local rate. Each year, the owner is allowed to keep a sum equal to 1% of the security deposit as an administrative fee. A landlord is not allowed to co-mingle the security deposit, and a tenant is entitled to receive interest annually from the landlord. At the end of the rental term, the landlord must return the security deposit less deductions within a reasonable amount of time. “Reasonable” is not specifically defined in the law. This period may be in the neighborhood of 30-60 days, but the term reasonable would be up to the interpretation of the court if a dispute regarding the return of the security deposit was to arise. The information provided is for market rate units. Rent stabilized tenancies may have different protections concerning security deposits.
This is intended to be a general overview. Please direct all inquires to Griffin Alexander, P.C.