NJ Security Deposit question: which tenant gets the interest?

Question

Good evening, BP.

Simple question: Let's say I have Duplex #1 with a checking and a savings account. The checking account will collect tenant #1's rent, whereas the savings account will hold tenant #1's Security Deposit + interest.

Fast forward a year and I decide to house-hack into Duplex #2 via FHA. I move into Duplex #2 and tenant #2 occupies the unit I used to live in in Duplex #1. Now the checking account collects rent from tenants #1 and #2 and the savings account holds the Security Deposits from both tenants #1 and #2 + interest.

Suddenly, tenant #1 wants to vacate from Duplex #1, so now I have to send the Security Deposit to him/her. The problem is: should tenant #1 receive all of the interest? Can I split the interest down the middle between tenant #1 and tenant #2? Should I open another savings account dedicated to tenant #2?

Joseph Cacciapaglia · Answer

This may have changed since I worked in NJ, but I think you need to hold their deposits in separate accounts. We used to set up individual accounts for each unit. It was cumbersome for sure, but at the time, we thought it was the only way to properly comply with the rules. Maybe someone with more recent management experience in NJ will chime in with more up to date info. One of the reasons I left that market, was how impractical a lot of the landlord/tenant rules were in practice.

I would probably pay each tenant the full amount of interest, meaning some would come out of my pocket. That way there is no way for either to complain, and it really won't cost you much at all.