Important points to know about rental security deposits

On Behalf of | Mar 1, 2021 | Landlord & tenant representation |

When someone rents an apartment, condo or house in NYC, the landlord will typically ask for a security deposit. The tenant will pay this money at the start of the lease. The security deposit helps protect the landlord if the tenant damages the rental unit or fails to pay rent.

There are specific rules landlords must follow when it comes to holding or returning security deposits; the failure to follow these rules may result in the landlord losing the ability to retain the security deposit if the tenant owes money at the end of the lease or has damaged the rental.

Collecting the money

A landlord may only collect a security deposit that is no more than one month’s rent. The Housing Stability and Tenant Protection Act of 2019 establishes this limit. A landlord who willfully disregards this provision is subject to double damages. Things like collecting first and last month rent or requiring prepayment of rent for the entire tenancy may be considered a violation of this section.

Holding the money

Landlords must keep security deposit money in an account that is separate from other money. The account must earn interest and must be with a New York State bank. It is the responsibility of the landlord to provide the tenant with the bank’s name and address. When returning the deposit, the landlord must pay the earned interest to the tenant. The landlord may keep 1% of the interest for fees.

Returning the money

A landlord must return the security deposit in full to a tenant when he or she moves out if the tenant does so according to the lease agreement and leaves the rental unit in the same condition as it was when he or she moved in. The exception is for normal wear and tear that will not count against the condition of the unit. There are mandatory inspection procedures before the tenant takes occupancy and immediately before the tenant vacates. Itemized statements must be provided to the tenant and the tenant must have an opportunity to cure any condition the landlord claims constitute damage.

Landlords only have 14 days after the tenant vacates to provide the inspection report and to return any portion of the security deposit to which the tenant is entitled. While deduction from the security deposit can be made for unpaid rent, unpaid items such as late fees and legal fees are not allowable deductions.  A landlord must commence suit against the tenant (such as in Small Claims Court) to recover those unpaid fees.

Given the landlord’s potential liability for violating this section, we suggest speaking with an attorney knowledgeable in the field such as those at Tane Waterman & Wurtzel, P.C. to ensure that there has been strict compliance with all of the obligations.