If you’re a prudent landlord, security deposits will be part of all of your rental agreements. A security deposit can be a great insurance policy against damage to the property, but it’s important to remember that once that money is in your hands, you have responsibilities. One of the best ways you can protect yourself from future problems is by setting up a landlord security deposit account to hold the money until the lease expires.
Having an account set aside to hold security deposits is only a minor expense, but it can save you from a significant amount of inconvenience. The law requires that you hold the money in a money market fund or interest-collecting bank account instead of spending it on any expenses, and you may be required to produce it suddenly in a variety of circumstances. If you are unable to refund the deposit on time, it can make evictions take longer.
Landlord Rights to the Security Deposits
Under New Jersey Law, you have the right to collect a deposit, and you have the right to collect parts of that deposit to cover the costs of preparing the leased unit for a new renter or collection of unpaid rent. However, you will need to handle the collection in the right order.
The deposit must be preserved in full until the lease has ended, in one of the types of accounts required by the law. Special conditions on the interest rate for the account begin to apply after you own 10 or more units. After you’ve had a chance to evaluate the unit, you can begin itemizing charges that will be deducted from the deposit. In some cases, the tenant may pay for some repairs themselves, and those charges must be removed from the amount deducted from the deposit.
In most cases, the law requires that tenants receive the difference of the deposit no more than 30 days after they’ve moved out. However, you may need to be able to return the deposit within as few as 5 days if there is a natural disaster or abuse situation.
Do landlords have a right to security deposit interest?
New Jersey law requires that all deposits be placed into one of several different types of interest-generating accounts. Once the deposit is returned, all of the interest that it has generated must also be passed to the tenant, or used to cover expenses that the tenant has incurred.
Ask us about security deposits in New Jersey
Our lawyers can assist you if you have any further questions about why or how you should set up a security deposit account for your tenants. We can help you calculate the proper security deposit to charge in your lease agreements, and provide you with answers to all of your rent-related questions, including accounting for security deposits.
Begin today by calling for a consultation.