Source: https://flip.lease/learn/security-deposits/security-deposits-in-new-york
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Security Deposit Laws in New York | Flip
LearnLegal IndexSecurity Deposit Laws in New York
Deposits are capped at one month's rent. Landlords must store the money in a separate account and return it within two weeks.
In the summer of 2019, New York State introduced a massive overhaul of landlord-tenant law, which included big changes to how security deposits are handled. Those changes have been entirely to the benefit of tenants, who now have some major new protections—including limits to how much money a landlord can ask for and strict requirements for when a deposit must be returned.
Below you'll find answers to the most common questions about security deposits in New York:
Can a landlord charge more than one month's rent?
How should landlords store deposits?
Do tenants get interest payments?
Are landlords required to schedule move-out inspections?
What can landlords deduct from the deposit?
How long do landlords have to return a deposit?
Security deposits are capped at one month’s rent in New York
New York State now limits how much a landlord can demand for a security deposit. It’s now illegal for a landlord to ask for a deposit that’s more than one month of rent under the proposed lease.1
However, the limit on security deposits isn’t retroactive. If a tenant’s current lease was signed before July 14th, 2019—and they were asked to put down a security deposit that was greater than one month’s rent—then the landlord is allowed to hold onto the additional money until the lease expires.2
Landlords can't mix security deposits with their own money
A security deposit remains the property of a tenant while they rent. That means that a landlord can’t combine security deposit funds with their own funds. Instead, New York landlords are required by law to store security deposits in a separate bank account that doesn't mix with the landlord’s own funds. When the landlord deposits the funds, they need to provide the tenant with written notice of the name and address of the bank holding the deposit.3
If a landlord does mix tenant funds with their own funds, the tenant is entitled to an immediate return of the deposit—with interest—even if the tenant has breached the lease. (Although the statute itself doesn't mention this consequence, New York judges have ruled that the commingling of a security deposit with a landlord's personal funds grants tenants an immediate right of recovery.4)
Tenants are entitled to any interest earned on their deposit
If a landlord is renting out a property with six or more units, the account they use to store security deposits must also earn interest. (There is no requirement for landlords with fewer than six units to earn interest on security deposits.)
A tenant is entitled to any interest earned on their security deposit. It's up to the tenant to decide how they would like to receive the interest money, which can be:
Paid out at the end of each year
Paid out at the end of the tenancy
Applied to rent payments
That said, the landlord is also allowed to claim a small administrative fee each year, an amount equal to 1% of the original security deposit. However, this money can only be subtracted from interest earned on the deposit, not from the deposit itself.5
Deposits should be handed over to new owner or tenant
If a landlord sells their property—or assigns a lease to a new tenant—they are required to turn over the security deposit to the new owner or leaseholder, and inform the previous tenant that they’ve done so.6
Landlords must work with tenants to schedule a move-out inspection
Once a tenant informs a landlord of their intent to terminate their tenancy, they may also request an inspection of the unit. The landlord has to work with the tenant to schedule this inspection, during which the landlord must inform the tenant of any conditions that must be repaired—or cleaning that must be performed—to avoid the withholding of any portion of a security deposit. In other words, they must provide the tenant with an opportunity to fix these conditions.7
Landlords can only deduct from the deposit for specific reasons
Upon a lease’s conclusion, landlords can retain all or some of a security deposit only for the following reasons:8
Damage caused by the tenant beyond normal wear and tear
Unpaid utility bills (if any are paid directly to the landlord under the terms of the lease)
Moving and storage of the tenant's belongings
Landlords have 14 days to return a deposit
Within 14 days of the tenant vacating the apartment, the landlord must return the security deposit to the tenant—along with an itemized list indicating the reasons the landlord has withheld any of the deposit. If the landlord does not return the deposit, with list included, within this time frame, they lose the ability to retain any of the deposit, for any reason.9
If the 14th day happens to fall on a Saturday, Sunday or public holiday, a landlord is allowed to return the deposit on the next business day.10
Security deposit disputes are handled in small claims court, not housing court
Security deposit disputes can be handled in a small claims court in New York, rather than housing court.11 Small claims court is easier for litigants without lawyers to navigate than housing court—disputes there are more streamlined and judges are used to working with people without representation.
If a tenant disputes a landlord's withholding of a portion of their security deposit, a tenant must allege that only “normal wear and tear” occurred in an apartment. Essentially, the tenant must come forward with some specific allegations and supporting evidence showing that the landlord withheld money inappropriately. Once the tenant has made this claim, it is up to the landlord to prove two things:12
The unit was damaged beyond what's considered "normal wear and tear"
The amount deducted is equivalent to the cost of repairs
Tenants can't use their deposit to pay last month's rent
Occasionally, renters decide to skip out on the last month’s rent and assume the security deposit will cover it. However, the New York State Division of Housing and Community Renewal could not be any more clear: "A security deposit should not be used as a final month's rent."13 If a tenant attempts to do so, a landlord could sue them for breaching the terms of the lease. Although it would likely take more than a month for the court to make a decision, this sort of lawsuit could show up on a tenant's credit report—making it more difficult for them to rent in the future.
[1] General Obligations Law §7-108
[2] “Guidance for Real Estate Professionals,” New York Department of State (1/31/20)
[3] General Obligations Law §7-103
[4] Jeffrey v. J.I.M. Mgmt. Co., 31 Misc. 3d 141(A), 929 N.Y.S.2d 200 (App. Term 2011)
[5] General Obligations Law §7-103
[6] General Obligations Law §7-105
[7] General Obligations Law §7-108
[8] General Obligations Law §7-108
[9] General Obligations Law §7-108
[10] “Guidance for Real Estate Professionals,” New York Department of State (1/31/20)
[11] Uniform Justice Court Act – Article 18, Small Claims
[12] Camacho v Paduch (2018)
[13] "Fact Sheet #9: Renting an Apartment - Security Deposits and Other Charges" (New York State Division of Housing and Community Renewal)