Collecting a security deposit is a critical task that a landlord will do at the beginning of a new lease arrangement. Security deposit laws vary by state, and New Jersey is a state that requires some careful paperwork in order to comply with the law. It’s not difficult, but landlords need to be aware of the finer points of security deposits in New Jersey and stay on top of all of the steps required of them.


The amount of security deposit is limited to 1.5 times monthly rent, including any prepaid rent.

Separate account required

Landlord has 30 days from accepting a security deposit to deposit it in an interest bearing bank account at a federally insured bank located in New Jersey. Also within 30 days of receipt of the security deposit the landlord must give the tenant a written notice of the name and address of the bank where the deposit is located, the type of account, the current rate of interest on the account, and the amount of the deposit.

Interest payments

On every anniversary of the lease start date the landlord must pay the interest earned to the tenant. Payment can be in cash or as a credit on rent due. While not required, it’s a good idea to provide a written receipt as record of interest payments made.

Failure To Deposit, Provide Notice, Or Pay Interest

If a landlord fails to deposit the security deposit in an interest bearing bank account, to provide the notice, or to pay the interest due to the tenant, the tenant can give written notice to the landlord that the security deposit plus interest at a rate of 7% per annum will be applied as a credit toward rent payments due or to become due. In addition, for the remaining of the tenancy the tenant is not obligated to provide a security deposit and the landlord cannot demand one.

If the landlord fails to pay the annual interest or provide the annual notice at the time of the annual interest payment, the tenant must first provide written notice to the landlord of their failure to provide the required notice and give the landlord 30 days to comply. This notice by the tenant must be provided prior to the tenant’s remedy of applying the security deposit plus 7% interest to the rent due or coming due.

Allowable charges

The security deposit can be used for damages beyond normal wear and tear. The tenant cannot apply the security deposit to the last month’s rent.

Return of deposit

The landlord has 30 days after the agreement is terminated or the unit is surrendered and possession by the landlord is recovered to return the deposit. The landlord must include any applicable interest along with an itemized itemized security deposit settlement statement listing any deductions.