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While it appears you have the legal right in NJ to use the SD as rent, provided the LL did not notify you where it was deposited within 30 days of originally receiving it, be very certain that you provide proper notice of the intended use of the SD as rent, per state law. Otherwise you'll be on the wrong side of the judge. Meanwhile, you may want to reconsider your decision to use it, since it appears to be putting strain on your LL/T relationship and you wanted to remain in the rental. Personally, if I were your LL and you wanted to use the SD as rent and your lease is expired, I'd give you a 30-day notice to terminate your tenancy and get you out before you cause damage that I no longer have an SD to cover. This is from the LSNJ Law website: Your right to use the security deposit as rent:
The law also says that if the landlord does not put the security money in a proper bank account, or does not give a proper written notice to the tenant every time the law says he or she has to, then the tenant can give a written notice to the landlord telling the landlord to use the whole deposit (plus seven percent interest per year) to pay the tenant’s rent. (But be sure to read the next paragraph, which talks about a special situation.) This notice should be sent to the landlord by certified mail, return receipt requested, and you should keep a copy. The money can be used to pay future rent or any back rent the tenant owes. Once a tenant legally tells the landlord to use the security deposit as rent, the landlord can’t ask the tenant for another deposit as long as the tenant lives in the apartment or house. Cite: N.J.S.A. 46:8-19(c); Delmat v. Kahn, 147 N.J. Super. 293 (App. Div. 1977). Note: There are two exceptions to the rights described in the paragraph above. If a landlord does not obey the law that says he or she must pay the interest on the security deposit every year (or if the landlord does not use the interest to pay part of the tenant’s rent), or
If the landlord does not give a notice about the deposit to the tenant every year,
the tenant can use the deposit to pay past or future rent due. But before the tenant can do this, the tenant must give or send the landlord a letter giving the landlord 30 days to pay the interest or give the annual notice. (This notice should also be sent by certified mail, return receipt requested, and you should keep a copy.) Cite: N.J.S.A. 46:8-19(c).
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