Security deposits in New Jersey: the rules for agents and the exam

New Jersey security deposit rules at a glance

New Jersey's security deposit law is the Rent Security Deposit Act, N.J.S.A. 46:8-19 through 46:8-26. Its starting idea is simple: the deposit belongs to the tenant. The landlord holds it in trust, cannot mix it with personal money, and has to account for every dollar when the tenancy ends. The Department of Community Affairs (DCA) explains the law for tenants in its Truth in Renting guide and in a Security Deposit Bulletin it revised in July 2025, but the rules below come from the statute itself.

No law enacted from 2024 through October 27, 2026 changed these deposit rules. The statute's own section histories show the last amendments in 2003 (most sections) and 2010 (the return section, 46:8-21.1), and DCA's July 2025 bulletin cites no new statute. A Senate bill to create a security deposit assistance pilot program (S1050) was introduced on January 13, 2026 and sent to committee, so it is not law. You may see websites claim a 2024 change, such as a 45-day return window or a right to a pre-move-out inspection. Neither appears in the statute; the deadline is still 30 days.

How much a landlord can collect

The cap is one and a half months' rent. A landlord can ask for less, never more. Two details catch people out. First, labels do not matter: the DCA Truth in Renting guide says any prepaid money held to secure future rent, including a last month's rent, counts as part of the security deposit, and a pet deposit combined with the regular deposit cannot go over the cap either. Second, the same DCA guide says a landlord may not require more than two and one-half times the monthly rent at the start of the lease. That figure is DCA's restatement, not a separate number written into 46:8-21.2, and it is just the first month's rent plus the full one and a half month deposit.

Increases have their own cap. Any additional deposit collected in a year may not exceed 10% of the current deposit. The overall one and a half month cap still applies, so the landlord is limited by whichever number is lower.

Where the deposit is kept and what the tenant is told

A landlord with fewer than 10 rental units has to put the money in an interest-bearing account at an insured bank or savings and loan in New Jersey, at the rate paid on savings or time deposits. A landlord with 10 or more units may use an insured money market fund run by a New Jersey based investment company, or a variable-rate account at an insured New Jersey institution. Either way, the deposit cannot be mingled with the landlord's own property, and the DCA bulletin says the landlord may not take administrative fees out of it.

Within 30 days of receiving the deposit, the landlord must tell the tenant in writing the name and address of the bank or fund, the type of account, the current interest rate and the amount deposited. The same notice is due within 30 days of moving the money to another account or bank, and with each annual interest payment.

The interest belongs to the tenant

The interest or earnings on the deposit are the tenant's money, not the landlord's. The landlord pays it in cash, or credits it toward rent due, on the lease renewal or anniversary date. If the landlord has told the tenant in writing that interest will be paid on January 31, it is paid on January 31 each year instead. Any interest not yet paid comes back with the deposit at the end of the tenancy.

Returning the deposit at move-out

Within 30 days after the lease ends, the landlord must return the deposit plus the tenant's interest, minus charges allowed by the lease. The money goes back by personal delivery, registered mail or certified mail, and the interest and any deductions must be itemized and sent to the tenant the same way (N.J.S.A. 46:8-21.1).

• Allowed deductions: damage beyond normal wear and tear, and other amounts owed under the lease, such as unpaid rent.
• Tenant still in the unit: no deductions may be made from the deposit of a tenant who remains in possession.
• Broken lease: the statute just says 30 days after the lease terminates. DCA's Truth in Renting guide reads that, for a tenant who breaks the lease without legal cause, as 30 days after the unit is re-rented or the lease term expires, whichever comes first.
• Not enough to cover it: if damage and unpaid rent exceed the deposit, the landlord can sue the tenant for the difference.
• Fire, flood, condemnation or evacuation: once an official posts a notice barring occupancy, or a building inspector certifies within 48 hours that displacement will last more than 7 days, the landlord has 5 business days to have the deposit and interest available and must return it when the tenant asks, less lawful charges and rent owed at displacement. The landlord also tells the tenant in writing within 3 business days of learning of the displacement.
• Domestic violence: a tenant who ends a lease under N.J.S.A. 46:8-9.6 (written notice of an imminent threat plus a restraining order, police record or other listed documentation) is released on the 30th day after the landlord receives the notice (46:8-9.7). Within 15 business days after that termination, the deposit and interest must be available for return, with written notice of where and when to collect it within 3 business days (46:8-21.1).

If the landlord misses the 30 days or wrongly keeps money, the tenant can sue, and the court must award double the amount, plus full court costs and, at the court's discretion, reasonable attorney's fees. Knowingly diverting a tenant's deposit is also a disorderly persons offense, with a fine of at least $200, up to 30 days in jail, or both (46:8-25).

Worked example: interest and the final refund

Here is how the numbers come together. Jordan rents from Ms. Ortiz for $2,000 a month and pays a $3,000 deposit. To keep the math clean, assume the account pays 1% simple interest a year. That rate is ours for illustration; real rates vary by bank.

Now change one fact: Ms. Ortiz sends nothing at all for two months. Jordan can sue, and the court must award double the amount owed, 2 x $2,680 = $5,360, plus full costs, and may add attorney's fees. If instead she had kept $1,000 for the door when the repair cost $350, the fight would be over the $650 she held back without basis, and double that is $1,300.

Who is exempt, and how a tenant can opt in

The Act does not apply to owner-occupied premises with not more than two rental units. In everyday terms, that is a two-family or three-family home where the owner lives in one of the units. A tenant in that kind of building can still get the Act's protection by giving the landlord 30 days' written notice, at any time during the tenancy, that they want it to apply.

Seasonal rentals are carved out only of the account and investment rules in 46:8-19: a residential rental of 125 consecutive days or less to someone who has a permanent home elsewhere. Housing for seasonal or migrant farm workers does not count as seasonal, and the landlord has to prove the rental is seasonal.

When the building is sold

Deposits travel with the building. Under N.J.S.A. 46:8-20, when the deed or lease assignment is delivered, or within five days after, the former owner must turn over each deposit plus the tenant's interest to the new owner and notify the tenant by registered or certified mail with the new owner's name and address. A former owner who does that is released from liability for the deposit (46:8-21). The new owner must collect the deposits at the transfer, is responsible for them and the interest whether or not the money was actually handed over, and must send its own deposit notice within 30 days of the transfer (46:8-19). For a buyer's agent on an investment purchase, that is a reason to ask for a rent roll showing every deposit and where it is held.

Security deposits vs earnest money: what agents handle

On the exam and in practice, keep two kinds of deposit apart. A rental security deposit is governed by the Rent Security Deposit Act. An earnest money deposit in a sale is governed by the Real Estate Commission's trust account rule, N.J.A.C. 11:5-5.1, and by the contract.

N.J.A.C. 11:5-5.1 covers all money of others a broker receives, not only sale deposits. It does not mention security deposits by name. If your brokerage manages rentals and takes in a tenant's deposit, our suggestion is to treat it as both: trust money under the Commission rule and a tenant deposit under the Act, with the management agreement saying exactly who holds it, in which New Jersey account, and who sends the tenant the 30-day notice. Ask your broker of record how the firm handles it before you ever accept a check. Mixing client money with business money is the core of commingling and conversion, and the trust funds and escrow lesson covers the broker side in full.

How security deposits show up on the PSI exam

PSI's New Jersey outline does not list security deposits by name. It lists the Truth in Renting Act under other laws and regulations in the 22-item state section, and the DCA Truth in Renting guide is where the deposit rules are spelled out for tenants. Landlords must give that guide to each tenant with a term of at least one month in buildings with more than two units, or more than three if the landlord lives there. The national portion covers leases and landlord and tenant rights and obligations under property management (handling landlord and tenant funds is a broker-only line), and the property management lesson ties the general rules together. Expect questions on the 1.5 month cap, the 10% increase cap, the 30-day return, double damages and the owner-occupied exemption.

Deposits are not the only lease-stage rule on the state side. Landlords also have screening limits under the Fair Chance in Housing Act and a flood risk notice to give under the New Jersey flood disclosure law.