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Better to Be Safe Than Sorry: Deductions from NJ Residential Security Deposits

New Jersey’s Security Deposit Law (NJSA 46:8-19) is one of the more tenant-friendly security deposit laws in the US. The Law requires strict compliance (almost to the letter) with each of its parts. Failing to follow the law, in detail, can expose a Landlord to a penalty of double the security deposit and attorney’s fees. Landlords and Tenants should be aware of the most common area of noncompliance: Unauthorized deductions.

The NJ Security Deposit Law provides that only those deductions allowed for in the lease can be made against the security deposit. For example, if a lease does not provide that unpaid rent can be offset from the deposit, a landlord cannot deduct that unpaid rent from the deposit. In Watson v. United real Estate, Inc., 131 N.J. Super. 579 (1974), a landlord retained the security deposit because the tenant terminated the lease early. The tenant sued for double the amount of the security deposit together with full costs and attorneys fees under the Security Deposit Law N.J.S.A. 46:8-21.1.

The landlord argued that the lease included a provision that allowed the Landlord to keep the security deposit as a penalty for breach of the lease agreement by tenant. The Court held that New Jersey’s Security Deposit Law does not allow a landlord to retain the deposit absent a showing of “charges expended in accordance with the terms of a contract, lease, or agreement.” It is important to note that the law requires “charges expended.” This means that if a landlord does not come “out-of-pocket” for a deduction is cannot be deducted against the security deposit. In this case, landlord’s retention of the security deposit amounted to “liquidated damages” which could not be recovered against the deposit. Consequently, the tenant was awarded double the security deposit and attorney’s fees.

Any deductions from the security deposit must be the exact amount of out-of-pocket expenses incurred by the landlord and caused by the tenant. The landlord’s right to these expenses should be clearly defined in the lease agreement. Failing to follow the NJ Security Deposit Law can expose a landlord to significant liability.

Since the facts of each circumstance vary, a landlord or tenant should consult an attorney with his/her specific circumstances. Offit Kurman practices landlord tenant law throughout New York and New Jersey assisting landlords and tenants in avoiding unnecessary and costly delays. The firm’s geographic practice area includes: New York City (Manhattan, New York County, Brooklyn, Kings County, Queens, Queens County, Bronx County, Staten Island, Richmond County) and New Jersey (Jersey City, Hoboken, Bayonne, Hudson County, Newark, Essex County, Woodbridge, Middlesex County, Paterson, Passaic County). The Firm invites you to visit the “Promises” page for our new way of doing business