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Key Takeaways
Security Deposit Laws & Rules: In New Jersey, landlords can’t charge more than 1.5 times the monthly rent for a security deposit, including any pet-related deposits. Written notice of the deposit details is required within 30 days, and landlords must pay tenants accrued interest annually.
Legitimate Deductions Only Per NJ Laws: Landlords can only deduct from the deposit for unpaid rent, late fees, unpaid utilities, and damages beyond normal wear and tear. Any deductions must be reasonable, with no cap on the amount deducted if justified.
Timely Deposit Returns: Deposits must generally be returned within 30 days of lease termination with an itemized list. Exceptions: a NJ tenant terminating the lease due to domestic violence must receive the deposit within 15 days, and in cases of fire, flood, evacuation, or condemnation, landlords have only 5 days.
If you are not collecting a security deposit from your NJ tenant, you’re doing yourself a disservice. What would you do if the tenant stops paying rent, destroys your property, or breaks their lease agreement without a legal justification?
That’s why requiring a security deposit is important.
Requiring new tenants to pay a security deposit can help cover certain financial liabilities that can arise during a tenancy, albeit to some extent. The security deposit plays a crucial role in protecting your money and best interests.
With that in mind, in New Jersey, as with most other states, the right to charge a security deposit isn’t without some responsibilities. New Jersey security deposit laws cover everything from the maximum limit, to allowable deductions, to the deadline for its return.
In this blog, the expert team at PMI Prime Property will walk you through the basics of the New Jersey security deposit laws.
This will help you familiarize yourself with what you can and cannot do in this regard, as well as the legal requirements and specific obligations you will need to follow. Remember, staying legally compliant is key to successful landlording.
Maximum Security Deposit Limit
There’s a limit to how much security deposit you can ask of a tenant in New Jersey. The maximum security deposit amount must not exceed the equivalent of 1.5X the monthly rent as per New Jersey security deposit laws.
Suppose, for instance, that you are charging tenants a monthly rent of, say, $2,000. Per the state law and legal requirements, it means that you cannot ask the tenant to pay you anything exceeding $3000 as a security deposit, as that would exceed the maximum amount.
You may increase a security deposit annually during tenancy by up to 10% of the current deposit amount. The total deposit, after any increase, still may not exceed 1.5 times the monthly rent.
Additional Pet Deposits
Do you allow pets into your rental property? If you do, and like the case with similar landlords, you may require the tenant to pay a deposit.
That said, you must ensure that the total deposit doesn’t exceed the state’s limit of 1.5X. And you must not go around this rule by giving them other names, such as “damage deposits” or “pet deposit.”
You can, however, charge the tenant a recurring pet rent if you so wish, just make sure to include the pet rent in your lease agreements.
Please keep in mind that you must exempt tenants with service or emotional support animals from the pet rent. Why? Disabled tenants are protected under the NJ Fair Housing Laws for the right to keep companion animals, and they cannot be charged pet rent.
For more information on New Jersey Fair Housing Laws, read our ultimate guide for landlords.
Written Notice Requirements
New Jersey security deposit laws require landlords to provide tenants with a written receipt of the funds.
The written receipt lets the tenant have a clear view of the charges accrued over the course of the lease, which can help avoid disputes about the specific circumstances. The written receipt, or itemized list, must include the following details.
The amount of the security deposit you have received.
The name and address of the institution you’ll use to keep the tenant’s deposit.
The current interest rate that the funds in the account would be earning.
Within 30 days of receiving the security deposit, the landlord must provide written notice giving the amount, the bank name and address, account type, and interest rate as per New Jersey laws.
Storing of Tenants’ Security Deposits
There are special requirements for landlords collecting deposits from at least 10 tenants according to New Jersey security deposit laws. You’ll have two options when it comes to storing them.
One option would be to place security deposits in interest-bearing accounts so the sum can collect annual interest.
The interest-bearing account must be in a financial institution that is chartered by either the state or federal government. Or, a FDIC-insured savings and loan association.
Aside from an interest-bearing account, the other option you have is to store the tenants’ security deposits as shares in a money market fund. The investment company must be based in New Jersey and have funds maturing within a year.
Payment of Interest on Stored Security Deposits
As a landlord in New Jersey, you must place the deposit in an interest-bearing account and pay tenants an annual interest payment. The annual interest payment can be paid as either a cash payment or rent credit.
Landlords with 10 or more units may alternatively invest deposits in a New Jersey-based insured money market fund. Any increase to the deposit must follow the 10% cap rule.
Sale of Rental Property
After selling a rental property in New Jersey, you’ll have 5 days to do either of the following. One, transfer the deposit and any accrued earnings or interest to the incoming landlord.
Or two, to notify the tenant through mail of the contact details of the person who has assumed the responsibility of keeping their security deposit.
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Security Deposit Deductions in New Jersey
In New Jersey, landlords can make deductions from a tenant’s security deposit for only the following reasons. That is:
Unpaid rent
Late fees
Unpaid utility bills, like gas and electricity
Cost of damages beyond normal wear and tear
Also, there is no legal limit on how many of these charges you can make. The only requirement is that they must be legitimate, reasonable, and that you provide tenants with an itemized list.
If the charges exceed the security deposit you’re holding, you can seek legal redress for the additional amounts of unpaid rent or other expenses.
Normal Wear and Tear Vs. Rental Damage
Normal wear and tear refers to the damage that occurs to a property due to normal, everyday use during the lease period. Examples of normal wear and tear include the following.
Faded paint due to age or sunlight exposure.
Faded hardwood flooring due to normal use.
Lightly dirtied grout.
Stained bath fixtures.
A squeaky door or window on opening or closing.
A slightly torn wallpaper.
Lightly scratched glass.
Gently worn carpets.
It is the landlord's obligation to fix these types of damage to your rental units after a tenant moves out to ensure the property's condition is habitable.
Damage exceeding normal wear and tear is, however, the tenant’s responsibility to make repairs as put forth by the lease agreement. It’s the type of damage that results from their recklessness, carelessness, or intentional damage.
The following are some common examples.
A severely torn wallpaper, blind, or curtain.
Missing boards from a hardwood floor.
Missing tiles.
Holes in the wall.
Missing fixtures, such as a doorknob or electrical switch.
A smashed window or bathroom mirror.
Graffiti on walls, or unauthorized paint colors.
Returning Security Deposits
After a tenant moves out, you have up to 30 days to return their security deposit, less any security deposit deductions from the remaining balance as per New Jersey security deposit laws.
Some exemptions do exist, though. For example, you may need to return it within 15 days if the tenant moves out due to domestic violence.
Conclusion
There you have it. These are the basics of the New Jersey security deposit laws that you must familiarize yourself with for successful landlording.
If you have questions about security deposit laws or need full-service property management services in Northern New Jersey, look no further than PMI Prime Property. We serve Northern New Jersey and the surrounding communities. Get in touch to learn more!
Disclaimer: Please note that the information provided in this blog is intended for general guidance and should not be considered as a replacement for professional legal advice. It is important to be aware that laws pertaining to property management may change, rendering this information outdated by the time you read it.
