security deposit return- complicated (NJ)

[Monica Horn]

Had tenants who were an unmarried couple.  Together on lease. 
One moved out 5 mo ago. One remained and has kept up with rent.

Lease is up Nov 1.  Offered the remaining tenant a new, 4 mo lease as his income and credit score is not great. This is a brand new lease as the "Tenant" of the previous lease now does not include the room mate who left.  Too significant a change to simply "renew" the lease.

So, I have to inspect the property and return the security deposit to the "Tenant" (both room mates together on one check). Then get a new Security Deposit from the tenant who is staying in the house.

I know there are at least 1 or 2 things in the property that are considered "damage" not "normal wear and tear".   So I planned on deducting accordingly from the Security Deposit.  Then I looked over NJ state law on this and it reads:      "no deductions shall be made from a security deposit of a tenant who remains in possession of the rental premises."

Now, "tenant" in the original lease is defined as the two room mates TOGETHER, equally.

So, in the eyes of the law would that mean that "tenant" has, in effect, moved out and is no longer in "possession of the rental"?   Meaning I *could* retain deductions from the Security Deposit they gave me together    ----OR----

Would the case be that this remaining tenant has not yet given up "possession of the rental" and so I have to wait until he vacates the property to get the damage fixed and deduct cost from his (individual)  Security Deposit.?

Thanks in advance! 

[not located in Newark, it's just the nearest to me of the NJ locations in the drop down]