I have a furnished winter rental in Wildwood, NJ. A tenant signed a 6-month lease (Nov. 1–Apr. 30) for $1,650/month and paid a $1,650 security deposit. About 5 weeks before move-in, he backed out because his plans changed and he decided to rent in Florida instead. It took me 41 days to finally find someone to sign a lease and get this far.

The lease states that leaving early does not by itself terminate his financial obligations. It also allows lawful deductions from the security deposit, including unpaid rent. 

I immediately relisted the property and am actively trying to mitigate my loss. I told him if I find a replacement for Nov. 1 and suffer no loss, I’ll refund his deposit in full.

He is demanding the $1,650 back immediately and threatening small claims, arguing that because he never moved in, I have no right to hold it.

My question: Can I hold the deposit while making reasonable efforts to re-rent, and if I can’t replace him by Nov. 1, apply it toward the actual lost rent? Does the fact that he never took possession change anything?

Would especially appreciate input from anyone familiar with NJ landlord-tenant law / N.J.S.A. 46:8-21.1.