Hello, I’m Dong Ho Song of Song & Associates. The relationship between landlords and tenants is a complex one that transcends borders and time. It’s a relationship that can be as close as it can be when there’s enough understanding and consideration, but it can also be as frustrating as it can be when there are conflicting interests. There are so many reasons why landlords and tenants can have disputes, and one of the most common is over security deposits, so today we’re going to take a look at some of the most confusing issues regarding security deposits in New Jersey through a Q&A.
Q. What is the cap on rental security deposits in New Jersey?
A. Unlike New York, where there is no cap on the amount of a security deposit, a security deposit in New Jersey cannot be more than one and a half months’ rent. If the rent goes up, the landlord can ask for an additional security deposit to cover it. However, under no circumstances can your security deposit increase by more than 10% in one year.
Q. Where should I keep my security deposit?
A. In New Jersey, there are two ways a landlord can keep your security deposit. First, a landlord can invest your security deposit in a short-term money market fund. In this case, the investment company must be registered under the Investment Company Act of 1940 and based in New Jersey. In addition, the trust must have stock registered under the Securities Act of 1933. And the trust must have a maturity date of no more than one year.
The second option is to hold it in an interest-bearing bank account. If the landlord owns more than 10 units, they should hold it in a bank account that offers a higher interest rate than the bank’s short-term money market accounts. If the landlord owns fewer than 10 units, they can simply keep it in an interest-bearing bank account without these requirements, and the interest earned must be returned to the tenant each year.
If the landlord doesn’t keep the security deposit in this way, the tenant can demand that the security deposit be applied to the rent, and the landlord can’t ask for more security deposits.
Q. What notice must a landlord give a tenant regarding a security deposit?
A. Landlords are required to give tenants written notice when: (1) they first receive the security deposit (within 30 days); (2) they move the security deposit to another bank account or short-term investment trust (within 30 days); (3) they return interest earned on the security deposit to the tenant; and (4) ownership of the unit passes to another person. The letter must include the following information: the name and address of the bank or trust company, the type of account the security deposit was deposited into, the interest rate, and the amount of the security deposit, and the letter must be signed by the landlord or the landlord’s agent.
If the landlord fails to return the interest earned on the security deposit to the tenant, or fails to properly deliver the aforementioned notice to the tenant, the tenant may write to the landlord demanding that the landlord make these corrections. If the landlord fails to correct the problem within 30 days of receiving the demand, the tenant may demand that the security deposit be applied to the rent. The landlord may not collect additional security deposits under these circumstances.
Q. When does a landlord have to return a security deposit to a tenant?
A. The landlord must return the security deposit within 30 days of the end of the lease term or the date the tenant moves out. If you have to move out because you are a victim of domestic violence, you have 15 days to return the security deposit. If you have to move out because of a natural disaster, such as a flood or fire, you have 5 days to return the security deposit. If the landlord doesn’t return the security deposit in a timely manner, the tenant can usually ask for double the amount of the security deposit.
Q. What happens to my security deposit if my landlord sells the property before the lease is finalized?
A. In this case, the landlord has five days after passing ownership of the house to the new landlord to turn over all the rent deposits and any accrued interest to the new landlord. And within 30 days of turning over the rent deposits and interest to the new landlord, the landlord must notify all tenants by letter with information about the name and address of the new landlord, which must be delivered by certified mail.
While a security deposit may seem simple, as we’ve covered today, there’s a lot more to know about security deposits in New Jersey. In fact, more people than you might think end up in litigation because of a lack of understanding about rent deposits, so if you find yourself in a situation where you are required to pay or take a rent deposit, I highly recommend that you consult with an attorney who is familiar with rental law to save yourself unnecessary time and money.
If you have any further questions about the content of this column, or if there is a law you’d like our readers to know about, please don’t hesitate to contact me at mail@songlawfirm.com. I will incorporate them into my next column.