Normally, I post on issues that affect landlords all across the country(inclusive of the US, although many of the issues are probably similar in many other parts of the world). But, this one is specifically for NJ landlords and is an important reminder.
Rent Security Deposit Act, N.J.S.A. 46:8-19 et seq.
The New Jersey security deposit law (The Rent Security Deposit Act, N.J.S.A. 46:8-19 et seq.) was amended on January 1, 2004. It provided for increased protection of Tenants’ security deposits. Why am I bringing up changes that took place 4 years ago? Because, it seems like I frequently talk to landlords who have properties in New Jersey who still don’t know what the currently security deposit laws mean to their property management business!
First, the basics. You should know that all interest earned on a security deposit account is the property of the tenant and these monies have to be kept in an account that earns interest. Note: There are special rules for landlords who own more than 10 units. In those cases, the security deposits must be held in a bank account that pays higher interest than a regular savings account along with other rules.
Each year, the landlord must do TWO things:
1. “Refund” the tenant their earned interest by either:
- paying the tenant the interest earned on the account during the prior year;
OR
- crediting the interest back to the tenant towards part of the tenant’s rent that’s due. If a rent credit is given in lieu of it being paid out, the tenant should be sent a notice which includes the amount of the rent credit.
AND
2. Each year at the time that the interest is paid to the tenant, the landlord must also provide a notice telling the tenant the amount of the deposit, the name and address of the bank, the type of account in which the security is deposited is held, and the current interest rate for that account.
What could happen if a landlord doesn’t comply with the Rent Security Deposit Act?
Glad you asked, because here’s the bad part. If a landlord does not abide by this law, the tenant may be able to use their security deposit to pay future or back rent. In other words, the landlord must give the tenant back their security deposit AND loses the ability to get another security deposit from that tenant as long as they occupy that unit! For example, if the landlord does not pay out interest or send the proper annual notice, a tenant may legally be able to demand that the security deposit be used to pay for rent that is in arrears or upcoming rent due. Note: In order for the tenant to do this, however, they must send the landlord a letter giving him 30 days to pay the interest or give the required annual notice discussed above.
When does the interest need to be paid to the tenant?
Interest needs to be paid or credited to the tenant by one of the following dates: renewal of the lease, the tenants’ anniversary date, or January 31st of each year.
Slightly off this issue, but still related to the security deposit law, landlords should know that they can’t use any part of the deposit while the tenant is still renting the property — not for repairs, rent due, etc.
Here is the link to the NJDCA Security Deposit Bulletin and to the law in the New Jersey Permanent Statute Database – Rent Security Deposit Act – N.J.S.A. 46:8-19 through 26 security deposits; investment, deposit, disposition.
Other important things to consider
If you are a landlord with properties in New Jersey I’d strongly encourage you to use the links above and refresh your knowledge on the security deposit laws. These documents go into much more detail than I cover in this article about the law, what you need to do, and the penalities that non-compliant landlords could face.
Check with your attorney and bank to see if there are ways to make compliance easier. For example, one of the banks that I use automatically issues the tenants their security deposit interest/earnings each year. They also provide statements to the tenant showing the banking institution’s name, address, account number, type of account, deposit amount, and rate of interest. Services like this can make things a lot easier for you, especially for landlords that have many units.
As rental property owners, the legal side of the business is probably the one that is the least enjoyable. It’s also the one that can get you into the most trouble. If you have ANY questions, contact an attorney who is skilled in landlord-tenant law. This article is not legal advice and does not cover all the situations that might arise from this subject. (That’s why there are lawyers.) However, this is a good example of why you should always stay abreast of the landlording laws, regulations and ordinances in your area.
Steve Boorstein
Landlord & Author
https://www.managerentalproperty.com/
http://www.howtobuyrentalproperty.com/
Hello Steve,
I don’t live in N.J.
However,I just wanted to
commend you on getting the
word out to those who do
live in N.J.
How can anyone adhere to
these laws when they don’t
even know that the laws exist!
Again,I thankyou for being
an advocate and explaining
the rules and laws of the
game.
– garry b
http://www.garryblanson.com
Hi,
I live in NJ and learned through a past Property Management position that the security interest comes back to the tenant as of the year 2004. I have fought my management to where I rent to recieve my interest. How do I know if it is correct? It’s not from the bank but from their office. Now it’s another year and I’m due for the interest this month and all they say is that the landlord is responsible. Uggh! The landlord is very old, hardly ever around, and last time, the management provided us a check of the interest. Naturally the bank could not assist me, so now I’m trying to figure out what is the next step??? Please advise and e-mail me at Jhanamo@comcast.net!
It seems to me that the NJ Security Deposit law is pretty clear on this issue. (The caveat to this is that I’m not an attorney and I don’t know your specific situation– so, I can’t give advice.)
Your security deposit should be in an interest bearing account. Each year the landlord must notify you of the interest due to you and either pay it out or credit it against your current rent. As far as I understand, when the security deposit account is set up at the bank, it is under your social security number and you may be mailed at least a yearly statement or 1099 for the interest earned at the end of the year. Your landlord must also inform you of where the account is held and the specifics of the account… which I won’t get into here due to the length of the post. You can look up that information using the links that I have provided in the article.
If the property management company won’t help you and the landlord is unresponsive, you may have the right to notify them in writing and then if they still have not paid you your interest due within a specific time frame– you may have the legal right to get your security deposit returned to you (again, the specifics are in the links that I have provided). Best of luck and hopefully your issue gets resolved quickly.
Unfortunately, most money markets are currently yielding pathetic rates… and I don’t know how much your security deposit is, but on a $1000 security deposit in a typical money market account today, you might be getting $12 a year in interest.
hi
I’m new at this, not a landlord, just a comment and maybe someone can enlighten me… my 80 yr old aunt had just moved from an apt she lived in fro 2 1/2 years. She had to pay 1/2 months rent from the security due to the 30 day notice she gave the landlord. Now I noticed on her statements from the bank where her security was at that on 8/31/07 a $25 withdrawal was made. this amount took her security deposit down from $1,350 to $1, 331 (interest had been added) I questioned the landlord and she said I’m glad u brought that up…and said the bank made a mistake…she also said she was eating it…I told asked why..the bank should make good..and she said when she found out the bank said she waited to look…she also showed me a copy of the withdrawal slip with someone signing my aunts name on it..I said u go back to the bank and tell them this is fraud, forgery etc and they better make good and its not to late…well, she rambled a bit more saying she didn’t want to push the issue thinking my aunt withdraw it..(the rental property is a good hour and a half from the bank) and other stupid answers…as though trying to avoid the subject….I know it’s only $25 but I don’t trust this woman she is shady….the apt was never painted in 2 1/2 years ..she kept the security on a previous tenant for the carpet that she said needed to be replaced and never was….the driveway was going to be repaired and never was…and I could go on …well anyway …just wanted some feed back I think…thank you
Hi,
I have a hypothetical, well something that I am currently dealing with. I deposited a security to my own account instead of an escrow account. I know under such conditions the tenant could ask that their security be considered as rent. However, they have to let me know in writing AND give me 30 days to either give them their interest or notify them of where their security is or both. Could I within these 30 days, immediately open an escrow account, and therefore invalidating their request of putting their security towards their rent?
Thanks for your question, I had a local attorney provide an answer for you in a more recent post, which you can follow here:
http://www.landlordbusinessinsider.com/2009/11/separating-tenant-security-deposits.html