CHAPTER 4: SECURITY DEPOSITS
LT:4-1. Definitions
For purposes of this Chapter:
“Landlord” includes but is not limited to (i) a representative or fiduciary; (ii)aperson who acquires or succeeds to the rights of the landlord, (iii) a landlord or lessor pursuant to a sublease, and (iv) a “landlord’s agent” as defined below.
“Landlord’s agent” means a person, designated by and acting on behalf of a landlord, to whom a security deposit has been entrusted.
“Lease” means an agreement setting forth the rights, duties and obligations that govern a tenancy. Reference to “lease” in this Chapter includes a lease, contract or agreement as those terms are used in the common law.
“Owner-occupied premises” means rental premises that may consist of one or more buildingsofcontaining more than one residential unit, at least one unit of which is legally occupied by a landlord as the landlord’s place of residence.
“Person” means an individual, corporation, company, agency, association, society, firm, limited liability company, limited liability partnership, partnership, joint stock company or any other legal entity, unless restricted by the context to one or some of the above.
“Refurbishment fee”means any deposit collected to insure against damage to the rental premises including but not limited to fees or deposits collected in advance from a tenant for the purpose of restoring, refurbishing or preparing the rental premises for the next occupant.
“Rental premises” or “premises” means real property used or occupied by a tenant in accordance with a lease and may include one or more rental units as well as areas to be used in common with other tenants.
“Security deposit” means money, however denominated, that is deposited or paid in advanceto secure thetenant’s performance under the lease and to compensate or reimburse a landlord for any breach of the lease attributable to the tenant, including non-payment of rent,and physical damage to the rental premises beyond normal wear and tear, and is otherwise refundable to the tenant.
“Seasonal use or rental” means use or rental for a term of not more than 125 consecutive days for residential purposes by a person having a permanent place of residence elsewhere.
“Service”, “serve”or “served”means by personal service or commercial courier whose regular business is deliveryservice, or by regular and certified mail, return receipt requested.
“Tenant” includes but is not limited to a representative or other person who acts on behalf of a tenant or acquires or succeeds to the rights of the tenant.
Source: New
COMMENT
This section is new. The terms “landlord” and “tenant”, which have acquired well-understood and ordinary meanings, are not defined. In order to make the language clearer and more concise, these terms include but are not limited to other related and important terms that are used in the source statute.
The terms “owner-occupied”, “rental premises” and “security deposit” are defined for the first time to assist the reader in understanding the statute.
The definition of “owner-occupied premises” is consistent with the case of Harrison v. Zelko, 272 N.J. Super. 219 (App. Div. 1994), in which the court held that (i) the Legislature intended to define “premises” broadly as “houses, buildings, lands or tenements” and (ii) the premises in question -- a 9.7 acre property, consisting of the main house that was used as the landlord’s residence, along with a cottage located within 300 feet from the house on the same acreage with one paying tenant and a barn located within 200 feet from the house on the same acreage in which lived the property caretaker (rent free) and a rent paying tenant -- was “owner-occupied . . . with not more than two rental units”.
The definition of “security deposit” reflects the District Court’s pronouncement in Brownstone Arms v. Asher, 121 N.J. Super. 401 (Dist. Ct. 1972), reaffirmed by the court in Reilly v. Weiss, A-5065-07T1, (Appellate Division, March 24, 2009 and approved for publication), that the current Security Deposit Act also regulates “advances on leases as deposits to secure performance of leases”. The definition also reflects that a lease may require the payment of other nonrefundable fees that are imposed by a landlord for purposes other than to secure performance of the lease.
To preserve the intent of the source statute and make the language more concise, the term “lease” includes the source statute’s reference to the terms “contract, lease, or agreement”. The definition of “seasonal use or rental” is excerpted from source section 46:8-19 and incorporated here.
LT:4-2. Application of Chapter
This Chapter shall apply to all rental premises used for residential purposes except:
a. owner-occupied premises in which the owner also rents either one or two rental units for residential purposes, unless the tenant, at any time during the tenancy, provides written notice to the landlord invoking this Chapter and gives the landlord 30 days to comply.
b. seasonal use or rental unless the real property is rented or used for residential purposes for seasonal, temporary or migrant farm workers in connection with any work or place where work is being performed. The landlord shall have the burden of proving the nature of the use of the real property in accordance with this subsection.
Source: 46:8-26; 46:8-19.
COMMENT
This section adopts the provisions of source sections 46:8-26 and 46:8-19 that pertain to the applicability of the security deposit law.
LT:4-3. Amount of security deposit
a. As part of the lease, a landlord may require a security deposit for the rental of real property used for residential purposes in an amount not to exceed one and one half times the monthly rent. Any amount collected as security in any 12-month period after the start of the initial lease shall not be greater than 10 percent of the then current security deposit. The amount of a security deposit shall include anyrefurbishmentfee collected by the landlord.
b.If more than one and one half times the monthly rent is collected by a landlord in violation of this section, the tenant may request at any time during the tenancy that the landlord apply the excess security deposit to the payment of rent.
Source: 46:8-21.2; new.
COMMENT
This section clarifies that an additional security may be collected during a 12-month period provided that the total deposit does not exceed the maximum of 1½ times the rent. However, if an additional deposit is required because the landlord did not require the maximum deposit originally or the rent is lawfully increased, there is a cap of 10 per cent of the then current security deposit within any year.
New subsection (b) is derived from dicta in Reilly v. Weiss, A-5065-07T1 (Appellate Division, March 24, 2009 and approved for publication) and Brownstone Arms v. Asher, 121 N.J. Super. 401 (Dist. Ct. 1972). The Reilly court stated that although “[t]he SDA [Security Deposit Act] . . . fails to provide a specific remedy for violations of its limit upon the amount of security that a landlord may demand [citation] [w]e have no doubt that had plaintiffs in this case sought to apply the $1425 they deposited in excess of the statutory limit to their rent obligations during their tenancy, such a result would necessarily have been mandated. Although not specifically provided for by the SDA, such a remedy was recognized in Brownstone Arms . . . .”
LT:4-4. Investment of security deposit
a. Until repaid or applied in accordance with the lease and this Chapter, a security deposit, including accrued interest or earnings, shall continue to be the property of the person who made the security deposit and shall be held in trust by the landlord. A security deposit shall not be mingled with the property or become an asset of the landlord. However, security deposits for one or more tenants may be deposited or invested in one account so long as the landlord complies with the other provisions of this Chapter.
b. Security deposits for a total of 10 rental units or more shall be deposited or invested as follows:
(1) in shares of a money market fund insured by the Federal Deposit Insurance Corporation or its successor entity and established by an investment company based in this State and registered under the "Investment Company Act of 1940," 54 Stat. 789 (15 U.S.C.s.80a-1 et seq.) whose shares are registered under the "Securities Act of 1933," 48 Stat. 74 (15 U.S.C.s.77a. et seq.) and the only investments of which fund are instruments maturing in one year or less, or
(2) in a depository account at a State or federally chartered bank, savings bank or savings and loan association in this State insured by the Federal Deposit Insurance Corporation or its successor entity and bearing a variable rate of interest that is (i) established at least quarterly; and (ii) similar to the average rate of interest on active interest-bearing money market transaction accounts paid by such institutions or equal to the interest paid by an investment company as described in subsection (b)(1).
c. Security deposits for less than a total of 10 rental units shall be deposited, unless otherwise required by the Commissioner of Banking and Insurance, in a State or federally chartered bank, savings bank or savings and loan association in this State insured by an agency of the federal government in an account bearing interest at the rate currently paid by such institutions and associations on time or savings deposits. The Commissioner shall require that security deposits for less than a total of 10 rental units be invested in accordance with subsection b. upon finding it practical to do so.
d. A landlord shall be required to deposit or invest any security deposit received in accordance with this section immediately after the landlord receives the security deposit and either the landlord or the depository institutionreceivesanythe information required in accordance with section LT:4-5.
Source: 46:8-19.
COMMENT
This section incorporates the portion of its source, section 46:8-19, that pertains to the investment of the security deposit. Because of current banking procedures, reference is now made to the Federal Deposit Insurance Corporation, as noted. Reference is also made to new section LT:4-5.
LT:4-5. Tenant cooperation to invest security deposit
a. A tenant shall comply with procedures required by law of the depository institution where the security deposit is to be invested, including compliance with State and federal laws regulating depository and investment accounts. The landlord shall have the burden of proving that these requirements and the fact that the tenant has the option to contact the depository institution directly in order to comply with them,any other disclosures to the tenant required by this section were made known to the tenant.
b.If a landlord self-administers the security deposit investment account, any information required in order for the landlord to comply with State and federal laws shall be made available by the tenant to the landlord. The landlord shall notify the tenant in writing if the landlord self-administers the security investment account, including in the notice (i) a description of the required information, and (ii) instructions to the tenant to provide the information to the landlord in accordance with this section.
c.Ifa depository institution administers the security deposit investment account, any information required in accordance with this provisionsection may be provided by a tenant directly to athe depository institution without the information being made available to the landlord. The landlord shall notify the tenant in writing, including in the notice (i) a description of the required information, and (ii) instructions to the tenant that the information required in accordance with this section may be provided directly to the depository institution without being made available to the landlord.
Source: New.
COMMENT
This section is new and included because of the requirements of depository institutions that pay interest on rent security accounts to report those payments to federal and State governments. As a result, these institutions require tenants to provide tax identification numbers or other identifying documents, such as passports, driver’s licenses or employment authorization cards. Such institutions are also obligated to collect information about certain individuals in accordance with the USA Patriot Act. In those cases where the depository institutions administer the security deposit accounts, tenants may provide the required information directly to the institutions without the information being provided to landlords.
LT:4-6. Notification of investment of security deposit
a. A landlord shall giveservewritten notice of a deposit or investment required in accordance with section LT:4-4 to each tenant as set forth below and otherwise provided in this Chapter.
b. The notice required by this section shall identify (i) the name and address of the investment company, State or federally chartered bank, savings bank or savings and loan association in which the deposit or investment is made, (ii) the type of account, (iii) the account number; (iv) the current rate of interest; and (v) the amount of money deposited or invested.
c. Notice shall be givenserved:
(1) within 30 days after the receipt of the security deposit, and each transaction thereafter in the account where the security deposit is deposited or invested, except that no notice shall be required for the periodic posting of interest for any period less than annually;
(2) within 30 days after transfer of the security deposit from one depository institution or fund to another, if the change occurs more than 60 days prior to the date for payment of annual interest to the tenant in accordance with section LT:4-7(a), except that in the case of a merger of institutions or funds, within 30 days of the date that the landlord receives notice of that merger;
(3) within 30 days after transfer of the security deposit from one account to another account if the change in the account occurs more than 60 days prior to the date for payment of annual interest to the tenant in accordance with section LT:4-7(a);
(4) with each annual interest payment either paid or credited to the tenant in accordance with section LT:4-7(a);
(5) within 30 days after the transfer or conveyance of ownership or control of the rental premises in accordance with section LT:4-8.
Source: 46:8-19.
COMMENT
This section incorporates the portion of its source, section 46:8-19, that pertains to the notification of the investment of the security deposit. However, the provision regarding the giving of notice within 30 days after the effective date of P.L. 2003, c. 188 (C. 46:8-21.4 et al.) is not included as the effective date of that statute was January 1, 2004.
LT:4-7. Accrued interest or earnings for security deposit; disposition
a. The accrued interest or earnings from the investment of a security deposit shall be paid to the tenant, in cash, or at the option of the tenantlandlord, shall be credited toward the payment of rent due, as of the annual anniversary date of the tenant's lease, or, as of January 31 immediately following the creation of the tenancy and in each succeeding year, if the tenant has been given written notice, before the next anniversary of the tenant’s lease, that interest payments will be made on, or before, January 31 of each year.
b. Subject to the requirements of subsection (c), if a landlord does not comply with sections LT:4-4 or LT:4-6, a tenant may give written notice to the landlord that the security deposit and an amount representing interest at the rate of 7% per annumyearbe applied to the rent due or to become due from the tenant. Thereafter, the tenant shall be without obligation to make and the landlord shall not be entitled to demand any further security deposit. Interest required by this subsection shall be calculated from the date that the landlord fails to comply with this Chapter.
c. If the annual interest is not paid or credited in accordance with LT:4-7(a), or the annual notice not provided in accordance with section LT:4-6(c)(4), unless the annual notice is also serving as a notice of change of account or institution, before a tenant may apply the security deposit plus interest to rent due, the tenant shall (i) give written notice to the landlord of the failure to comply and (ii) allow 30 days from the mailing date or hand delivery of the notice for compliance.
Source: 46:8-19.
COMMENT
This section incorporates the portion of its source, section 46:8-19, that pertains to the payment of interest or earnings from the investment of the security deposit. Unlike the source statute, which does not address the issue, new subsection (a) of this section gives the landlord the option of determining whether interest or earnings from the security deposit will be paid to or credited against future rent due from the tenant, which is consistent with current practice. Since the 2004 change to the security deposit law now requires all interest to be paid to the tenant, section 46:8-19.1, which pertains to regulations to establish the method of computing the interest due to the tenant, has not been incorporated into this new section.
LT:4-8. Procedure on conveyance of property
a. A landlord shall turn over a security deposit and the accrued interest or earnings upon the transfer or conveyance of the rental premises in the following manner:
(1) to the purchaser upon sale at the time of closing, either directly, or by a credit against the purchase price in which case the purchaser shall comply with this Chapter as though the purchaser had received the funds directly from the tenant; or
(2) to the grantee or assignee of the landlord’s interests upon assignment of the lease within five days after delivery of the instrument of assignment; or
(3) to the grantee or purchaser upon a mortgage foreclosure sale within five days after delivery of the deedupon expiration of the right of redemption; or
(4) to the person taking title to the rental premises upon the insolvency or bankruptcy of the landlord within five days after the making and entry of an order discharging the receiver or trustee.
b. Service of written notice of the turnover, including the information required in section LT:4-6(b), together with the name and address of the person to whom the rental premises is conveyed, shall be made on the tenant.
c. At the time of the transfer or conveyance described in subsection (a), the person to whom the rental premises is transferred or conveyed shall be obligated to obtain from the landlord any security deposit that the landlord received from a tenant or previous landlord and was required to be invested by this Chapter, plus the accrued interest or earnings, and shall comply with this Chapter as though the deposit had been received directly from the tenant.