Most New Jersey landlords know that requiring a tenant to provide a security deposit makes fine business sense. What many landlords don’t know is that failing to follow NJ’s security deposit laws can result in serious business consequences. Landlords treating tenant security deposits as a problem to be dealt with when a lease ends are asking for trouble. The best approach is a compliant plan to avoid costly errors and the devil in the details.
Tenant security deposits are protected by N.J.S.A. 46:8-19, “Deposit to Secure Performance of Lease…” et. seq. (“Rent Security Deposit Act”). Requirements under the Rent Security Deposit Act are split into two categories: 1) What a landlord must do with the deposit and 2) What the landlord must tell the tenant. What a landlord must do with the deposit depends on the type of landlord.
For landlords with over ten rental units, the Rent Security Deposit Act section (a)(1) requires that they do one of two things: The tenant’s security deposit can either be invested in shares of an insured money market fund maturing in one year or less or deposited in a state or federally chartered bank, in the State of New Jersey. It should be noted that these accounts must bear a quarterly interest rate that is similar to the average in the market.
Landlords with less than ten units must deposit the money in a state or federally chartered bank, savings bank, or savings and loan association in New Jersey and insured by the government. The interest paid on the account must be the rate currently paid by similar institutions.
In addition to the deposit requirements, there are equally important notice requirements. The law requires that landlords notify the tenant of (1) the name and address of the institution holding the deposit; (2) the type of account; (3) the current rate of interest for that account; (4) the amount of the deposit.
In terms of notice, there are two important points to be made. Firstly, the above notice provisions apply to all landlords, with no regard to the number of rental units. Secondly, for those landlords who rent to tenants receiving government assistance, the “tenant” paying the deposit may be a county welfare agency or other supporting agency. Generally, this notice should be provided within 30 days of receiving the deposit from the tenant or other agency.
The requirements of the Rent Security Deposit Act are ongoing. As the security deposit sits in an approved account it gains interest. When the time comes to return the security deposit, smart landlords will have kept track of interest earned. That interest must be (1) paid to the tenant in cash; or (2) credited to the rent due upon renewal of the lease.
The provisions of the Rent Security Deposit Act must be taken seriously and followed strictly. Failure to do so can expose a landlord to liability far beyond the inconvenience of following the Act from the start. For this reason, it is best to ensure that all rental properties remain in strict with landlord-tenant laws.
Since the facts of each circumstance vary, a landlord should consult attorney with his/her specific circumstances. The Major Law Firm practices landlord tenant law throughout New York and New Jersey assisting landlords in avoiding unnecessary and costly delays. The firm’s geographic practice area includes: New York City (Manhattan, New York County, Brooklyn, Kings County, Queens, Queens County, Bronx County, Staten Island, Richmond County) and New Jersey (Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County). The Firm invites you to visit the “Promises” page for our new way of doing business. Contact us today for a guaranteed free initial consultation.