Buying a Building with New Tenants? Be Sure to Comply with Security Deposit Laws


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Purchasing an investment property with existing tenants can be an attractive option for people looking to get into real estate. In an ideal world, you will have responsible tenants that cover your mortgage payment or provide you with reliable rental income every month. It’s important to remember, however, that you also have certain legal obligations as a new landlord, including some with regard to how you handle your new tenants’ security deposits.

Security Deposits in New Jersey

Lease agreements that require tenants to pay the first month’s rent and a security deposit prior to moving in are commonplace in New Jersey. Security deposits are used to protect landlords from tenants who fail to abide by the terms of their lease, including damaging the property or failing to pay rent.

New Jersey law regulates how a landlord can collect, maintain, and return a tenant’s security deposit. In addition, it specifies that a security deposit is money that belongs to the tenant but is held in trust by the landlord. The maximum deposit a landlord can require is one and one-half the amount of the rent. Even when the rent is raised, a landlord can only collect an additional 10 percent of the current deposit in a given year, regardless of how much the rent is raised.

The law requires that landlords put the security deposit in a separate, interest-bearing bank account and inform tenants in writing where the deposit is held, the type of account it is in, and the interest rate the account pays. This notice must be provided to the tenant within 30 days of payment and every year when the landlord pays the interest to the tenant.

What New Landlords Need to Know

If you have purchased a building with existing tenants, it’s imperative that you take steps to ensure that you comply with the law as it applies to security deposits. If you do not, your tenants can legally request that their security deposits be used as rent, leaving you without the important protections associated with holding tenants’ funds in the event of nonpayment or damage to your property.

The law requires that new landlords provide notice within 30 days of purchasing the property. In addition, new landlords are required to provide notice within 30 days of moving the deposits from one bank to another or from one account to another. There is an exception to this requirement when the change in bank or account occurs within 2 months of the annual interest payment to the tenant.

Call Us Today to Schedule a Consultation with a New Jersey Landlord-Tenant Attorney

As a landlord, it’s critical that you do everything you can to ensure that you are in compliance with New Jersey law landlord-tenant law with regard to security deposits and other matters. Lawrence M. Centanni has more than 10 years of experience in real estate law and knows how to protect your rights and your investments. To schedule a consultation with Mr. Centanni, call our office today at 908-351-0028 or contact us online.

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