New Jersey Tenants Can Pay Rent With Security Deposit: Court

Jared McClain of NCLA and Gov. Phil Murphy (Photos via iStock, NCLA, Getty)

Gov. Phil Murphy’s executive order allowing security deposits to be used towards rent is constitutional, a New Jersey appeals court ruled Tuesday.

Executive Order No. 128, which Murphy signed in April 2020, aims to help tenants struggling to pay rent during the pandemic.

Under the order, tenants can use their security deposit to pay rent, a practice that some property owners said has forced them to pay out-of-pocket for thousands of dollars’ worth of damage that tenants left behind.

Nonprofit group New Civil Liberties Alliance argued on landlords’ behalf that the order violated a separation of powers and deprived them of due process by waiving lease provisions that separate security deposits from rent.

But the appellate division of the Superior Court ruled that the order does not violate separation of powers because the Disaster Control Act allows the governor to use all resources and power “convenient or necessary in his judgment” to provide for public safety during a crisis.

“The governor used his emergency powers to protect the health and welfare of the public, which includes the public economic crisis,” the court document reads.

The NCLA said the ruling gave the governor the power of an autocrat.

“No law or contract in New Jersey is safe now whenever the state faces an economic downturn,” New Civil Liberties Alliance litigation counsel Jared McClain said in a statement.

Murphy’s office referred a request for comment to the office of the attorney general, which litigated the case.

“In the worst of COVID-19, @GovMurphy protected individuals from public health and economic harms. One Exec Order supported renters and helped keep them in their homes,” acting Attorney General Andrew Bruck tweeted Tuesday. “Today NJ won big in court: the Gov’s Order protecting renters is valid.”

The court also ruled that the order did not violate the New Jersey constitution’s contracts clause, which generally prohibits the state from interfering with contracts.

This is in part because the rental industry is heavily regulated and landlords know to expect changes by the government.

“Appellants’ reasonable expectations should have been that in a pandemic, rental contracts might be impacted by the state regulating the use of tenants’ security deposits,” the court wrote.

The court likened the executive order to when tenants forfeit their security deposit to cover last month’s rent on a lease, and added that landlords can still collect what is owed by going to court once courts fully reopen.

“The fact that landlords would prefer not to avail themselves of their legal remedies — because it is often not worth the trouble to pursue a deadbeat tenant — does not mean that the state has impaired their contractual rights,” the filing reads.

Landlords require security deposits precisely for that reason: Going to court often costs more than what they can recover by doing so.

The governor’s order is in effect during the public health emergency and up to 60 days after it ends. Tenants are still obligated to replenish the security deposit in full if they renew their lease.

The NCLA is also challenging the executive order in federal court, saying it violates the contracts clause of the U.S. Constitution. That case is pending in the Court of Appeals for the Third Circuit.

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