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LEGAL TOPICS
Security Deposit: What It Is and What a Landlord Must Do With It While You Live in the Property

What is a security deposit?

A security deposit is any money paid to the landlord in case the tenant moves out and owes money. It may be called something else, but it is still a security deposit. “Last month’s rent” paid in advance is security deposit money because it protects the landlord in case the tenant moves without paying the last month of rent. See Brownstone Arms v. Asher, 121 N.J. Super. 401, (Dist. Ct. 1972). A “pet deposit” is a security deposit because it is money paid to the landlord in case the tenant’s pet damages the unit. See Chatterjee v. Iero, 380 N.J.Super. 46 (Law Div. 2005).

The security deposit is the tenant’s money, but it is held by the landlord. (N.J.S.A. 46:8-19, N.J.S.A. 46:18-23) If the tenant does not pay the entire security deposit, a landlord should not treat it like unpaid rent. The only time a landlord can ever treat nonpayment of a security deposit as unpaid rent is pursuant to N.J.S.A. 46:8-21.1, when: 1) the tenant is displaced; 2) the tenant gets the initial deposit back; 3) the tenant later moves back in, and 4) the tenant fails to repay the deposit in the installment payments as required by law. A landlord cannot treat a security deposit as his or her personal property. They also cannot put it in a bank account with their own money, like any rent money that they receive.) Knowingly using money that is supposed to be held in trust could be a disorderly person’s offense. (N.J.S.A. 46:8-25).

The Rent Security Deposit Act (N.J.S.A. 46:8-19 – N.J.S.A. 46:8-26)

Does the Act apply to all landlords?

The Act does not apply to seasonal use or rental units. “Seasonal use or rental” means that the rental is for 125 days or less, by a person who has a permanent home someplace else. (Living quarters for seasonal, temporary or migrant farm workers connected with their work are not considered seasonal rentals. The landlord has to prove that the use or rental of the property is “seasonal.” (N.J.S.A. 46:8-19(d)).

The Act does not automatically apply to owner-occupied properties with one or two residential rental units (including your unit). We will discuss this in more detail in the section Notice After Paying the Deposit.

If the Act applies, the landlord has to abide by the law, regardless of what your lease states. (N.J.S.A. 46:8-24) For example, you can apply your security deposit to rent if your landlord did not follow the law, even if your lease states that you cannot use it for rent.

How much can a landlord charge for security under the Rent Security Deposit Act?

The total security deposit can never be more than one and a half times the full monthly rent. Remember, a security deposit can include things like “last month’s rent” paid up front, or a “pet deposit.”

The landlord may request additional security deposit money annually. However, the additional amount cannot be more than 10% of the prior deposit, and the total security can never be more than 1½ times the monthly rent. (N.J.S.A. 46:8-21.2).

If the tenant paid too much security deposit money, the tenant may seek a credit against the rent for the excess amount. See Brownstone Arms v. Asher, 121 N.J.Super. 401 (Dist. Ct. 1972).

What kind of notices does the landlord need to provide to the tenant?

The Rent Security Deposit Act requires the landlord to deposit a tenant’s security in a New Jersey bank in an account that pays interest. The bank may need the tenant to complete an IRS W-9 Request for Taxpayer Identification Number and Certification form. This is because the security deposit is the tenant’s money and any interest earned is treated as income to the tenant.

Notice After Paying the Deposit

Tenants in nonowner-occupied units

The landlord has 30 days from receipt of the deposit to provide written notice with the following information:

  • The name and address of the bank where the deposit is being kept;
  • The amount of the deposit;
  • The type of account that is being used; and
  • The current interest rate for that account.

This information may be on the written lease agreement or in a separate notice. If a landlord fails to provide this notice, the tenant can apply the security deposit, plus 7% of the deposit for each year it was held, to the rent. A bank providing the notice on behalf of the landlord is sufficient, if it includes all of the required information. The law requires that the notice include all of the above information. However, some courts have denied an application of the security to rent where the landlord nearly complied with all of these requirements and properly deposited the money. A tenant applying the security deposit should have the rent money set aside in case the landlord files for eviction, and the judge does not rule in the tenant’s favor.

Even if the landlord sends the notice within 30 days, the landlord still violates the law if the notice is not true. In that case, you have the same rights as if the landlord had not sent you a notice at all. (Princeton Hill Associates v. Lynch, 241 N.J. Super. 363 (App. Div. 1990)). See Sample Letter Applying Security to Rent for Failure to Provide Initial Notice for Nonowner-Occupied Properties.

Tenants living in owner-occupied properties.

Tenants who live in owner-occupied properties with one or two residential rental units (including your unit) can apply the security deposit toward rent by first sending a thirty day notice to the landlord demanding that the landlord comply with the provisions of the Rent Security Deposit Act. This is a called invoking the provisions of the Rent Security Deposit Act. The landlord, then, has 30 days to comply with the requirements of the Act. (N.J.S.A. 46:8-26) See Sample Letter Invoking the Provisions of the Rent Security Deposit Act for Owner Occupied Premises with One or Two Residential Rental Units.   

If the landlord fails to comply with requirements after you have sent the notice invoking the provisions, then you have the right to apply the security deposit as described above. See Sample Letter Applying Security to Rent for Failure to Provide Initial Notice for Owner-Occupied Properties.

Annual Notice

On the anniversary of the lease, the landlord must pay any accrued interest to the tenant, or apply that amount to the tenant’s rent. If interest rates are low, this may not be much money. The landlord also has to provide a notice, containing the same information as discussed in the prior section, at the time of each annual interest payment.

If the landlord fails to pay the annual interest and/or provide the annual notice, the tenant can send the landlord written notice about the error and allow 30 days from the mailing date, or hand delivery, for the landlord to comply. Sample Letter 30-Day Notice of Failure to Provide Annual Interest Statement or Payment.

If there is no compliance, then the tenant can send a letter notifying the landlord that they are applying the security and interest to the rent. See Sample Letter Landlord, Applying Security Deposit to Rent for Failure to Give the Annual Interest Statement or Payment.

If the annual notice is also supposed to notify the tenant about a change of account or institution (discussed below), then the tenant does not have to first give the landlord 30 days to correct the error.

Other required notices

If your landlord moves the deposit from one bank to another, he or she has 30 days from the date of the move to provide the person who made the deposit with written notice of the change. If the bank that has your security deposit merges with another institution, the landlord then has 30 days of receipt of notice to inform you. See Sample Letter Applying Security Deposit to Rent for Failure to Provide Notice After Merger.

What if the property is sold or lost after a foreclosure while I am living there?

The new owner is responsible to the tenant for the security deposit, even if the new owner did not get the deposit from the prior owner. (N.J.S.A. 46:8-21). The tenant may be asked to show proof that the deposit was paid, such as a receipt.

A new landlord must provide the tenant with the same notices—the name and address of bank that holds the account, the type of account, and the rate of interest—within 30 days of the transfer of the property. (N.J. S.A. 46:19(c)(5)). See Sample Letter New Owner Regarding Notice of Where Security Deposit Was Placed.

If you are not sure when the transfer of the property occurred, you can go in person to your county register of deeds to look at the deed. Some counties maintain land records online. A pending foreclosure with the court does not mean that ownership of the property has changed.

TIP: Always keep proof that you paid a deposit. Try to get a written receipt. You can write out a receipt for the landlord to sign or initial. Include your name, the amount paid, that it is for a security deposit for (property address), and the date that payment was made. This could also be added to any written lease agreement.    

No obligation to replenish the deposit

Once a tenant legally tells the landlord to use the security deposit as rent, the landlord can’t ask for another deposit as long as the tenant lives in the apartment or house. (N.J.S.A. 46:8-19(c); Delmat v. Kahn, 147 N.J. Super. 293 (App. Div. 1977)).

Example: Improper Security Deposit Increase

Tenant’s rent is $1,000 per month. The landlord demanded one month’s security deposit, which the tenant paid. The landlord also required a $100 pet deposit.

A year later, the landlord sought to increase the rent by $50, to $1,050. The landlord then demanded that the tenant pay an additional $575 toward the security deposit. $1,575 is 1½ times the new monthly rent of $1,050.

Can the landlord increase the deposit to $1,575?

No. The total of all security deposit monies is $1,100 ($1,000 deposit plus the $100 pet deposit), because a pet deposit is security deposit money. An additional $575 toward the deposit would mean that the total deposit would be $1,675, which is more than 1½ times the monthly rent.

More importantly, the landlord cannot ask for more than 10% of the initial deposit of $1,100. The landlord can only increase the security deposit by $110 (10% of the prior deposit).


Example: Computing the Amount to Apply to Rent

Tenant paid $1,000 security deposit January 1, 2016 and wishes to apply it with interest to rent on March 31, 2019.

Interest for full years 2017, 2018, and 2019
1/1/2017 – 12/31/2017: $1,000 x 1.07 = $1,070
1/1/2018 – 12/31/2018: $1,070 x 1.07 = $1,144.90
1/1/2019 – 12/31/2019: $1,144.90 x 1.07 = $1,225.04

Interest for January to March, 2020
1/1/2020 – 3/31/2020: $1,225.04 x .07 = $85.75
$85.75 ÷ 12 (for 12 months over the course of a year) = $7.15
$7.15 x 3 (for the 3 months in 2019) = $21.44

The total amount that the tenant can seek to apply to rent as of March 31, 2020 is $1,246.48 ($1,225.04 + $21.44)


For more information about how to get your security deposit back, read Getting Your Security Deposit Back. If you need help with a landlord tenant matter, you may apply for our services online at www.lsnjlawhotline.org, or by calling 1-888-LSNJ-LAW (1-888-576-5529).

Sample Letters

Applying Security Deposit to Rent for Failure to Provide Initial Notice for Nonowner-Occupied Properties

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

On or about (approx. date), you received a security deposit in the amount of $___. It has been more than 30 days since that time.

I have not received anything in writing stating the name of the institution where the deposit has been placed, the type of account in which the security deposit is deposited or invested, the current rate of interest for that account, and the amount of such deposit or investment.

Therefore, in accordance with N.J.S.A. 46:8-19, I am applying my deposit of $____, plus 7% interest per annum, totaling $____, to the rent, for a total of $____. This means that I currently [pick one] only owe $____ for rent, or, I have a $____ credit against my rent.    

Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)


Invoking the Provisions of the Rent Security Deposit Act for Owner-Occupied Premises with One or Two Residential Rental Units

                                                                                     Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

On or about (approx. date), you received a security deposit in the amount of $___. In accordance with N.J.S.A. 46:8-26, this is my 30-day notice to you invoking the provisions of the Rent Security Deposit Act, N.J.S.A. 46:8-19 et seq.

I intend to seek whatever remedies the Act affords if you fail to comply with its provisions within 30 days. Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)


Applying Security Deposit to Rent for Failure to Provide Initial Notice for Owner-Occupied Properties

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

It has been more than 30 days since my letter to you invoking the provisions of the Rent Security Deposit Act, N.J.S.A. 46:8-19 et seq.
You have not provided me with written notice of the name of the institution where the deposit has been placed, the type of account in which the security deposit is deposited or invested, the current rate of interest for that account, and the amount of such deposit or investment. Therefore, according to N.J.S.A. 46:8-19, I am applying my deposit of $___, plus 7% interest per annum totaling $___, to the rent, for a total of $___.  This means I currently [pick one] only owe $___ for rent, or, I have a $______________credit against my rent. 

                                                                                    Your tenant,

                                                                                    (type and sign your name)


30-Day Notice of Failure to Provide Annual Interest Statement or Payment 

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

On or about (approx. date), you received a security deposit in the amount of $___. This is to put you on notice that [I have not received my annual interest payment AND/OR I have not received the annual notice as required by N.J.S.A. 46:8-19.1(c)]. Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)


Failure to Give the Annual Interest Statement or Payment

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

It has been more than 30 days since I mailed (or hand-delivered) the enclosed letter to you (include copy of prior letter). I have not received a written response from you.

Therefore, in accordance with  N.J.S.A. 46:8-19, I am applying the deposit of $___, plus 7% interest per annum totaling $___, to the rent, for a total of $___.  This means I currently owe [pick one] only $___ for rent, or, I have a $___ credit against my rent.   

Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)


Applying Security Deposit to Rent for Failure to Provide Initial Notice After Merger

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

On or about (approx. date), you received a security deposit in the amount of $___. You notified me that the deposit was placed in (name of institution). Such institution has merged with (name of institution) and it has been more than 30 days since the merger was completed and made known to the public. You had 30 days after receiving notice of the merger to provide me with written notice of stating the name of the current institution that has the deposit, the type of account in which the security deposit is deposited or invested, the current rate of interest for that account, and the amount of such deposit or investment. I have not received such a notice. Therefore, in accordance with N.J.S.A. 46:8-19(c), I am applying my deposit of $___, plus 7% interest per annum, totaling $___, to the rent, for a total of $___.  This means I currently owe [pick one] only $___ for rent, or, I have a $___credit against my rent.

Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)


New Owner Regarding Notice of Where Security Deposit was Placed 

                                                                                    Date

Landlord’s name
Landlord’s address

Re: Security Deposit for __________ (your address)

Dear Mr./Ms. ________,

I paid a security deposit of $___ to the prior owner. In accordance with N.J.S.A. 46:8-21, you are responsible to me for that money, regardless of whether you received it from the prior owner.

You were required to provide me with notice of where the security deposit was placed, the type of account and rate of interest, within 30 days after the transfer of the property. It has been more than 30 days since the transfer.

Therefore, according to N.J.S.A. 46:8-19, I am applying the deposit of $___, plus 7% interest per annum totaling $___, to the rent, for a total of $___.  This means I currently owe [pick one] only $___ for rent, or, I have a $___credit against my rent. 

Thank you for your attention to this matter.

                                                                                    Your tenant,

                                                                                    (type and sign your name)

​ ​​​​​​​

6/10/2020
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