New Jersey Security Deposit Collections & Holdings

New Jersey Security Deposit Collections & Holdings

Last Updated: January 6, 2023 by Ashley Porter

Quick Facts Answer
Maximum / Limit 1½ Months’ Rent
Receipt Requirement Required (for cash payments)
Inventory Requirement None
Interest Requirement Required (or investment earnings)

To learn about laws on security deposit returns in New Jersey, click here.

Maximum Security Deposit Allowed in New Jersey

New Jersey law limits the maximum security deposit to one and one-half month’s rent.

If a landlord collects additional money for the security deposit later in the tenancy, they can only increase the total security deposit by 10% per year.

Can Landlords Charge an Additional Pet Deposit in New Jersey?

In New Jersey, landlords can charge a pet deposit, except for service dogs and emotional support animals. However, the total security deposit cannot exceed one and one-half month’s rent. Landlords cannot exceed the limit by giving them another name like “pet deposit” or “damage deposit.” See Reilly v. Weiss.

This law does not prevent landlords from adding a monthly pet premium.

How Much Rent Can a Landlord Collect Upfront in New Jersey?

Landlords in New Jersey can collect the first month’s rent in advance. Landlords can only collect an additional one and one-half month’s rent in advance, whether called a “security deposit” or “last month’s rent.” Last month’s rent is considered part of the security deposit in New Jersey.

Security Deposit Collections in New Jersey

When collecting a security deposit, landlords in New Jersey must provide a written notice  to the tenant including the:

  • Amount of the deposit
  • Name and address of the investment company or depository where the security deposit will be kept
  • Type of account where the security deposit will be held
  • Current rate of interest for the account

The written notice must be provided within 30 days of receiving the security deposit by either including the information in the lease agreement or delivering the notice to the tenant.

The landlord must send additional written notices:

  • Within 30 days of transferring the security deposit to another account (unless the transfer occurs fewer than 60 days before the landlord provides the tenant with annual interest or earnings)
  • Every year at the time the landlord pays or credits interest or earnings

Do Landlords Have to Provide a Receipt for the Security Deposit in New Jersey?

While landlords in New Jersey must provide a written disclosure to tenants containing information such as where the security deposit will be held, an additional receipt is only required when the tenant pays in cash.

What Obligations Do Landlords Have to Establish the Condition at Move-in in New Jersey?

New Jersey law does not require landlords to document or establish the property’s condition at move-in. While other states legally require a written inventory of damages to be completed when collecting a security deposit, New Jersey does not.

Security Deposit Holdings in New Jersey

Landlords in New Jersey that collect 10 or more security deposits must hold them in one of two places: an interest-bearing account or by investing in shares of an insured money market fund.

Option 1: Interest-bearing account. The landlord may place the security deposit in a state or federally-chartered bank or savings and loan association in an account insured by the FDIC that gains a variable rate of interest typical of similar accounts.

Option 2: Shares of a money market fund. The landlord may purchase shares of an insured money market fund through an investment company based in New Jersey. All investments of the fund must mature in one year or less.

Alternative: Security deposits for nine or fewer units. If the landlord holds nine or fewer security deposits, they should be held in an interest-bearing account in any New Jersey financial institution insured by the FDIC.

Are Tenants Entitled to Interest on Their Security Deposit in New Jersey?

Landlords in New Jersey do owe interest (or earnings from an investment fund) on security deposits. However, this requirement only applies to landlords that collect security deposits for 10 or more rental units.

The interest or earnings must be either credited towards rent or paid to the tenant directly on every anniversary of the tenant’s lease or annually on January 31st (by written notice to the tenant).

The tenant can demand by written notice that the entire security deposit plus 7% annual interest be applied toward the tenant’s rent if the landlord fails to do either of the following:

  • Invest or properly hold the security deposit
  • Provide the written notice required when collecting the security deposit

If a tenant exercises this right, the landlord cannot collect another security deposit for the remainder of the tenancy.

How Are Security Deposits Accounted for in New Jersey?

Security deposits are not considered taxable income when they are collected.

What Happens to a Security Deposit When the Property is Sold in New Jersey?

When a property is sold in New Jersey, the seller has five days after the sale of the property to:

  • Transfer the security deposit and any interest or earnings to the new owner, who must handle it according to the same rules
  • Notify the tenant by registered or certified mail of the name and address of the person that assumed responsibility for the security deposit