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New Jersey Security Deposit Laws
By October 16, 2013 Posted in Landlord/Tenant Law Share
Renters in New Jersey are typically asked to put down first month’s rent when they sign a lease on a new place, as well as a pre-determined amount for a security deposit, in some cases equal to or even more than a month’s rent. Landlords collect these payments as an insurance policy, to hold tenants responsible for the overall condition of the apartment during their rental period. Before entering into a lease agreement, the attorneys at Griffin Alexander, P.C., landlord tenant lawyers in New Jersey, recommend that both parties review the state laws regarding security deposits.
In New Jersey, the security deposit law is known as the Rent Security Deposit Act. This Act details the requirements for collecting a security deposit, as well as the holding period and the return process. Local counties and towns may have additional laws governing the security deposit process as well, which apply in conjunction with the state requirements. Security deposit limits are set statewide; a landlord can ask for no more than one and a half month’s rent as the yearly deposit. If the tenant plans to renew his annual lease, and his rental rates go up, the landlord can also increase the amount of the security deposit, but only by ten percent per year.
Landlords in New Jersey can store security deposit funds in one of two ways. The first option is to invest the payment in a money market fund, provided the chosen investment company is based in the state, and registered with the Investment Company Act of 1940. The company shares must also be registered under the Securities Act of 1933, and the maturity date on the fund must be only for the lease duration—a year or less. The other option is to deposit the funds in an interest-bearing bank account. If the landlord owns ten or more apartment units, the interest on this account must be greater than or equal to the interest earned by the bank’s money market accounts. If he owns less than ten units, there are no interest requirements.
The law stipulates that the tenant receives any interest earned on his deposit, and renters can choose to have those earnings applied to their next rent payment. If the security deposit amount has not been invested properly, tenants may notify their landlords in writing that they want to use their security deposit, along with seven percent interest, as a rental payment. The landlord cannot ask for an additional deposit in this case.
New Jersey landlords are required to provide written notice to their tenants when they receive the security deposit payment. If the deposit is listed as a requirement in the signed lease agreement, that counts as a written notice. Otherwise, tenants must be made aware of the bank or company at which their funds are invested, as well as the amount of the deposit, the interest rate, and the landlord’s signature. A landlord is allowed to keep all or part of a security deposit if the tenant fails to pay rent or damages the property excessively; otherwise, security deposits must be returned in full within 30 days of the tenant’s move out date or lease termination date.
At New Jersey law firm Griffin Alexander, our landlord tenant lawyers offer legal consultation and advice to renters and landlords who need clarification on the state laws for security deposits.