Overview
New Jersey security deposit laws are governed by the Security Deposit Law (N.J.S.A. 46:8-19 through 46:8-26). New Jersey has robust tenant protections including strict deposit limits, mandatory interest payments, and strong penalties for violations. The law requires detailed notice requirements and limits annual deposit increases. A security deposit compliance platform can automate interest calculations and required notices.
Maximum Security Deposit
Under N.J.S.A. 46:8-21.2, landlords may collect no more than one and one-half (1.5) months' rent as a security deposit.
Annual Increases
Landlords may increase an existing deposit by up to 10% of the current deposit per year—not 10% of the new rent. For example, a $1,500 deposit can only increase by $150, even if rent increases significantly.
- Must provide 30 days written notice before any increase
- Total deposit can never exceed 1.5 months' current rent
Return Timeline
Landlords must return the security deposit within 30 days after lease termination (N.J.S.A. 46:8-21).
The return must include: (New York has similarly strict rules—see New York security deposit laws.)
- The deposit balance plus tenant's portion of interest/earnings
- An itemized list of any deductions
- Delivered by personal delivery, registered, or certified mail
Emergency Return: 5 Days
In emergencies such as fire or flood, landlords have only 5 days to return the deposit.
Interest Requirements
New Jersey requires landlords to pay interest on security deposits:
Where to Hold Deposits
For landlords managing 10 or more units, deposits must be held in:
- An interest-bearing account at a NJ-based bank, OR
- A NJ-based insured money market fund
Interest Payment
- Interest belongs to the tenant
- Must be paid annually in cash or as a rent credit
- Payment due on lease anniversary or January 31
Required Notice
Within 30 days of receiving the deposit (and annually thereafter), landlords must provide written notice of:
- Name and address of the financial institution
- Type of account
- Current interest rate
Allowable Deductions
Under N.J.S.A. 46:8-21.1, landlords may deduct for:
- Damages beyond normal wear and tear
- Outstanding fees due under the lease
- Unpaid rent
All deductions must be itemized in writing. Normal wear and tear is not deductible.
Penalties for Non-Compliance
New Jersey imposes significant penalties for violations:
Failure to Pay Interest or Provide Notice
Tenant may give written notice to apply the deposit plus 7% per annum interest toward rent.
Wrongful Withholding
If landlord refuses to return deposit or provide itemization, tenant may recover:
- Double the security deposit
- Court costs
- Attorney's fees
- Interest
Common Compliance Questions
How do I know which interest rate to use?
New Jersey requires you to pay interest at the rate paid by the bank where deposits are held, or the rate on State of New Jersey Cash Management Fund, whichever is higher. Check both rates annually. Most landlords use a money market account to simplify this—the bank can provide statements showing the exact interest earned, which you then pass through to tenants.
What exactly is a "rent-controlled" unit for deposit purposes?
If your municipality has rent control or rent leveling ordinances, your deposit may be capped at one month's rent instead of 1.5 months. Cities like Newark, Jersey City, and several others have such ordinances. Check your specific municipality—rules vary significantly. When in doubt, stick to one month to avoid violations.
Can I use the deposit for unpaid last month's rent?
Yes, but only after the tenant vacates and only for amounts actually owed. You cannot apply the deposit to rent while the tenant still occupies the unit, even if they've given notice and stopped paying. Deduct unpaid rent from the deposit during the 30-day return period, and itemize it clearly on your statement.
What's the penalty for not paying annual interest?
Failing to pay interest when due (annually or at lease termination) can result in the tenant applying it as a rent credit. More significantly, willful violations of the Security Deposit Act can result in the tenant recovering double the amount wrongfully withheld plus attorney's fees. Courts take interest payment obligations seriously. Request a demo to see how Passive handles interest tracking automatically.