NJ Security Deposit Act: Limits, Interest and Return Deadlines

The short answer: In New Jersey, a residential landlord can't require more than 1½ months' rent as a security deposit. Any increase in a year can't be more than 10% of the current deposit (N.J.S.A. 46:8-21.2). The deposit stays the tenant's money. It's held in trust in an interest-bearing account at an insured New Jersey institution, and the tenant gets written notice of where it is within 30 days (N.J.S.A. 46:8-19). After the lease ends, the landlord has 30 days to return it with interest, minus itemized charges. If a tenant sues and wins, the court awards double the amount owed plus costs (N.J.S.A. 46:8-21.1).

Leasing agents and property managers deal with these rules every week, and they show up on the state exam. The state's plain-language summary is the Department of Community Affairs Security Deposit Bulletin (revised July 2025). This guide covers each step.

Which rentals does the Security Deposit Act cover?

Almost all of them. The Act covers every rental unit used as a dwelling, with one exception: owner-occupied buildings with no more than two rental units. Even there, a tenant can opt into the Act by giving the landlord 30 days' written notice (N.J.S.A. 46:8-26). DCA says that notice can be given at any time during the tenancy (DCA bulletin).

Seasonal rentals get a narrower break. A rental of 125 consecutive days or less, for residential use, to someone with a permanent home elsewhere doesn't have to go into a bank or fund. The landlord carries the burden of proving the rental is seasonal (N.J.S.A. 46:8-19(d)). Shore agents should read the Jersey Shore seasonal rental market too.

How much can a NJ landlord collect?

For example, on a made-up rent of $2,000 a month, the most a landlord could require is $3,000. A later increase couldn't be more than $300 in a year. DCA adds that the statute sets no deadline for when a landlord asks for the deposit. It also suggests tenants get signed, dated receipts marked "security deposit" (DCA bulletin).

Where must the deposit be kept?

The money "shall continue to be the property of the person making such deposit." It's held in trust, can't be mixed with the landlord's own property, and doesn't become the landlord's asset (N.J.S.A. 46:8-19). Where it goes depends on the size of the landlord's holdings:

• 10 or more rental units: an insured money market fund run by a New Jersey-based investment company, or an account at an insured New Jersey bank, savings bank or savings and loan with a variable rate set at least quarterly.
• Fewer than 10 units: an interest-bearing account at an insured New Jersey bank, savings bank or savings and loan, paying the institution's current rate on time or savings deposits.

All deposits may be kept together in one account, as long as the other rules are met (N.J.S.A. 46:8-19).

What notice does the tenant get, and when is interest paid?

The landlord must tell the tenant in writing the name and address of the institution, the type of account, the current interest rate and the amount. This notice is due:

• within 30 days of receiving the deposit;
• within 30 days of moving it to another institution or account;
• at each annual interest payment; and
• within 30 days after the property is sold or control changes hands (N.J.S.A. 46:8-19(c)).

The interest belongs to the tenant. It's paid in cash or credited toward rent at the lease renewal or anniversary. It can instead be paid on January 31 if the tenant was told in writing that interest will be paid on that date each year (N.J.S.A. 46:8-19).

What can a tenant do if the landlord skips these steps?

Suppose the landlord doesn't deposit the money properly, give the notice or pay the interest. The tenant can send written notice that the deposit, plus interest at 7% a year, is to be applied to rent. After that, the landlord can't demand another deposit. For a missed annual interest payment or annual notice, the tenant must first give written notice and allow 30 days to fix it (N.J.S.A. 46:8-19). DCA's bulletin includes a sample tenant letter (DCA bulletin).

When must the deposit be returned?

No deductions may be taken while the tenant is still living in the unit. DCA explains that landlords may deduct for damage beyond ordinary wear and tear and for money owed under the lease. If more is owed than the deposit covers, the landlord can sue for the rest (DCA bulletin). A tenant who wins a suit for a withheld deposit gets double the amount, full costs and, at the court's discretion, reasonable attorney's fees (N.J.S.A. 46:8-21.1).

What happens to deposits when a rental property is sold?

The seller must hand the deposits, plus the tenants' interest, to the buyer when the deed is delivered or within five days afterward. The seller then notifies each tenant by registered or certified mail with the new holder's name and address. The buyer has a legal duty to get the deposits from the seller (N.J.S.A. 46:8-20). DCA says that the new owner becomes responsible for investing, giving notices, paying interest and returning the deposits even if the old owner never transferred them (DCA bulletin).

That's why a contract for a tenant-occupied building should list every tenant's deposit. See buying a two- to four-family home in NJ and the contract-to-closing checklist.

What should leasing agents and property managers watch for?

• The penalty reaches agents. Any party, agent or corporate officer who knowingly diverts deposit money, or consents to it, is a disorderly person. The penalty is a fine of at least $200, up to 30 days in jail, or both (N.J.S.A. 46:8-25).
• License-law trust rules also apply when a brokerage collects deposits for an owner. See do you need a license to be a property manager in NJ?.
• Don't give legal opinions. Send disputes to the owner's attorney, and point tenants to DCA's bulletin. Eviction rules are separate: see the parent guide, the NJ Anti-Eviction Act for leasing agents. For exam review, see leasing and property management on the NJ exam.

Leasing work in New Jersey generally starts with a license. Business Elementary's 75-hour pre-licensing course is the first step.

Sources

• N.J.S.A. 46:8-19 (trust, accounts, notice, interest, seasonal rule): https://law.justia.com/codes/new-jersey/title-46/section-46-8-19/
• N.J.S.A. 46:8-20 (transfer on sale or foreclosure): https://law.justia.com/codes/new-jersey/title-46/section-46-8-20/
• N.J.S.A. 46:8-21.1 (return deadlines; double damages): https://law.justia.com/codes/new-jersey/title-46/section-46-8-21-1/
• N.J.S.A. 46:8-21.2 (1½-month cap; 10% increase limit): https://law.justia.com/codes/new-jersey/title-46/section-46-8-21-2/
• N.J.S.A. 46:8-25 (unlawful diversion penalty): https://law.justia.com/codes/new-jersey/title-46/section-46-8-25/
• N.J.S.A. 46:8-26 (owner-occupied two-unit exception): https://law.justia.com/codes/new-jersey/title-46/section-46-8-26/
• NJ Department of Community Affairs, Security Deposit Bulletin (May 2010, revised July 2025): https://www.nj.gov/dca/codes/publications/pdf_lti/secty_deposit_bulletin.pdf

Last reviewed: November 9, 2026