COVID-19: New Jersey Governor Issues Executive Order Allowing Residential Tenants to Use Security Deposits for Rent | Practical Law

COVID-19: New Jersey Governor Issues Executive Order Allowing Residential Tenants to Use Security Deposits for Rent | Practical Law

New Jersey Governor Philip D. Murphy issued an executive order allowing residential tenants to apply security deposits to rent payments during the COVID-19 public health emergency declared by the Governor on March 9, 2020. The order, which supersedes provisions of New Jersey's Rent Security Deposit Act during the public health emergency, became effective on April 24, 2020.

COVID-19: New Jersey Governor Issues Executive Order Allowing Residential Tenants to Use Security Deposits for Rent

by Practical Law Real Estate
Published on 22 Jul 2021 • New Jersey
New Jersey Governor Philip D. Murphy issued an executive order allowing residential tenants to apply security deposits to rent payments during the COVID-19 public health emergency declared by the Governor on March 9, 2020. The order, which supersedes provisions of New Jersey's Rent Security Deposit Act during the public health emergency, became effective on April 24, 2020.
Update: On July 20, 2021, the Superior Court of New Jersey, Appellate Division, issued a decision rejecting a challenge to Executive Order No. 128 (EO 128) brought by a group of residential rental property owners and managers (Kravitz v. Murphy, ). The court held that EO 128 was a proper exercise of the Governor's power under New Jersey's Civil Defense and Disaster Control Act (Disaster Control Act) (N.J.S.A. App. A:9-30 to App. A:9-63). The court specifically found that EO 128 satisfies the New Jersey Supreme Court's two-part test for determining the validity of actions under the Disaster Control Act by being both:
  • Rationally related to the legislative goal of protecting the public. The court noted that the COVID-19 pandemic is a fiscal and economic crisis in addition to a public health emergency.
  • Closely tailored to the magnitude of the emergency. The court cited among other points that tenants are limited to using their own funds and landlords may still obtain judgments for unpaid rent or damages.
The court also concluded that EO 128 does not improperly interfere with private contracts in part because the continued ability to obtain traditional forms of relief against tenants indicates that landlords' contractual rights are not substantially impaired.
The court acknowledged that the Governor formally terminated the public health emergency and EO 128 on June 4, 2021. The court still proceeded to issue its opinion because EO 128 by its terms remains effective for 60 days after termination and includes mandates (for example, the requirement for tenants to replenish their security deposit accounts) that potentially last even longer (see Outcome).
New Jersey Governor Philip D. Murphy issued Executive Order No. 128 enabling residential tenants to request that their landlords apply or credit their security deposits and any accumulated interest or earnings towards rent payments during the public health emergency the Governor declared on March 9, 2020, and for a period of 60 days after the public health emergency terminates. The order, which took effect on April 24, 2020, temporarily supersedes provisions of New Jersey's Rent Security Deposit Act (Rent Security Act) which regulates use of security deposits for residential rental properties (N.J.S.A. 46:8-19 to 46:8-26).

Background

The Governor's Executive Orders

EO 128 is the most recent in a series of executive orders issued by Governor Murphy to combat the health and financial risks posed by the novel coronavirus disease (COVID-19). On March 9, 2020, he declared both a public health emergency and a state of emergency. Since then, he has issued executive orders:
  • Establishing statewide social mitigation strategies for combatting COVID-19, such as social distancing and reducing person-to-person interactions in accordance with Centers for Disease Control (CDC) and Department of Health (DOH) guidance.
  • Enacting a moratorium on the removal of individuals from residential properties through an eviction or foreclosure proceeding, including staying the enforcement of:
    • judgments for possession;
    • warrants of removal; and
    • writs of possession.

The Rent Security Act

New Jersey's Rent Security Act governs the administration, return, and transfer of security deposits for most residential properties, including mobile homes and tenant-occupied single-family homes. The Rent Security Act, among other things:
  • Requires residential landlords holding security deposits subject to its provisions to hold security deposits in interest-bearing accounts.
  • Prohibits the landlord from commingling the security deposit with its own funds.
(N.J.S.A. 46:8-19(a), (b).)
The landlord may deduct certain expenses from the security deposit under the terms of a residential lease at the end of a tenancy. Under normal circumstances, no deductions may be made from the security deposit of a tenant who remains in possession of the premises (N.J.S.A. 46:8-21.1). EO 128 temporarily supersedes that rule.
For more information on New Jersey's Rent Security Act, see Practice Note, Security Deposits for Residential Lease Agreements (NJ).

Outcome

During the public health emergency ordered by the Governor and for up to 60 days after the emergency terminates, on written request from a tenant (including electronic communication) the landlord must apply the tenant's security deposit towards rent due or to become due.
If the tenant makes this written request to the landlord, the order further provides that:
  • The landlord may recoup from the tenant any monies expended by the landlord:
    • that would have been reimbursable by the security deposit; and
    • at the time any such reimbursement would have normally taken place.
  • The tenant is not obligated to replenish the security deposit for the contract, lease, or license agreement (occupancy agreement). However, if the tenant and landlord extend or renew the occupancy agreement following the date of the order, then the tenant must replenish the security deposit in full on the later of the date:
    • six months after the public health emergency ends; or
    • on which the current occupancy agreement is extended or renewed.
  • Using the security deposit for the purposes outlined in the order is not considered a violation of the Rent Security Act and those provisions of the Act that are not inconsistent with the order remain in full force and effect.

Implications

While EO 128 does not resolve the broader financial concerns of New Jersey residents, it is intended to provide critical short-term relief to residential tenants struggling to cope with the financial impact of the COVID-19 crisis. It may mean residential landlords have difficulty recouping costs and expenses for repairs and other defaults of a tenant if the landlord applies the security deposit to rent before the lease expires.