On April 24, 2020, Governor Murphy enacted Executive Order 128, which upended New Jersey statutory law and decades of jurisprudence by enabling residential tenants to use, at their written request, security deposits as partial or full payment of rent during the coronavirus state of emergency. In issuing the Order, Governor Murphy pointed to the large number of unemployment claims that have been filed, as well as the necessity to maintain stability and keep the virus from spreading as justification for this extraordinary action.
The Executive Order, however, substantially changes the framework of the applicable statute in a way that makes it, arguably, improper. Pursuant to the Security Deposit Act, N.J.S.A. 46:8-19 to -26, a security deposit and the accumulated interest and earnings on the investment of the deposit remain the property of the tenant. The Act also requires the landlord to return the tenant’s security deposit and interest accrued within 30 days after the termination of the lease, less any charges expended in accordance with the terms of the lease. In addition, more often than not, the lease between a landlord and a tenant will contain a provision that describes the amount of the security deposit, the manner in which the landlord will safeguard that deposit, and what it may be used for. The typical lease provides that it is the landlord who can determine whether to apply the security to a rent deficiency, repairs to the leased property, or in other respects. Although the Landlord must provide an accounting of the use of the funds, the tenant does not have the right to compel the landlord as to when and how the security may be applied. Now, through the issuance of this Order, Governor Murphy’s administration is changing and altering contracts between private parties in a way that can and will negatively impact their positions.
For example, if a landlord receives a request from a tenant that the security deposit be applied to cover his next month’s rent, pursuant to the Order the landlord is obligated to do so, thereby reducing the landlord’s security for damages that may have been caused by the tenant. Under most leases, the landlord could simply refuse to honor this request and proceed with an eviction based upon the tenant’s failure to pay current rent, while retaining the deposit to cover an eventual rent shortfall or, alternatively, ensure that the landlord is able to repair any damage to the premises. By depriving the landlord of the security deposit for its intended purposes, tenants can and some will feel enabled to act with total disregard for the landlord’s property and the requirements of the lease. With the security deposit depleted, a landlord will have little recourse. Given the economic uncertainty, it may leave the landlord with a dilemma between making repairs to the property in order to try to bring in new tenants, or to abandon any recourse the landlord might otherwise have under law.
This Executive Branch modification of the Security Deposit Act will surely be a point of contention in the judiciary. The Governor, as the executive who has usurped the power of the legislature, has just unloaded a new set of problems upon the judiciary with an already extremely strained landlord-tenant court system. While it remains to be seen how harmful the impact will actually be, there is no doubt that landlords will be left bearing the brunt of the responsibility for dealing with the uncertainty created by this new Executive Order.
Finally, from a State constitutional standpoint, the Executive Order seems to violate the contracts clause of the New Jersey Constitution. Modeled after the federal Constitution, Article IV, section VII of the New Jersey Constitution prohibits the government from taking any action which deprives a party from enforcing a contract under its terms when it was made. This Order, which would appear to be an ex post facto alteration, may be void for constitutional reasons. However, it is only the judicial branch that has the power to strike down an administrative order on constitutional grounds, unless and until the legislature may expressly override the new order statutorily. Time will tell whether either or both of these challenges will occur and whether, as a result, Governor Murphy’s Executive Order will nevertheless stand.
Michael Orozco is Of Counsel with Price, Meese, Shulman & D’Arminio, PC, and can be reached at morozco@pricemeese.com or (201) 391 3737.
