BARRISTER'S BRIEFING: A Close Look at Rent Security Deposits in New York
Leon Cameron, Esq. | February 2019
Virtually all leases require tenants to give their landlords a security deposit; usually of one month’s rent. If a lease is renewed at a greater amount or the rent is increased during the term of the lease, the owner is permitted to collect additional money from the tenant in order to bring the security deposit up to the new monthly rent.
Landlords, regardless of the number of units in the building, must treat the deposits as trust funds belonging to their tenants and they may not co-mingle deposits with their own money. Landlords of buildings with six or more apartments must put all security deposits in New York bank accounts earning interest at the prevailing rate. Each tenant must be informed in writing of the bank’s name, address and the amount of the deposit.
Landlords are entitled to collect annual administrative expenses of 1% of the deposit. All other interest earned on the deposits belongs to the tenants. Tenants must be given the option of having this interest paid to them annually, applied to rent, or paid at the end of the lease term. If the building has fewer than six apartments, a landlord who voluntarily places the security deposits in an interest-bearing bank account must also follow these rules.
For example: A tenant pays a security deposit of $1,000. The landlord places the deposit in an interest-bearing bank account paying 1.5%. At the end of the year the account will have earned interest of $15.00. The tenant is entitled to $5.00 and the landlord may retain $10.00, 1% of the deposit, as an administrative fee. A landlord may use the security deposit as a reimbursement for any unpaid rent, or the reasonable cost of repairs beyond normal wear and tear, if the tenant damages the apartment, he or she must return the security deposit, less any lawful deduction, to the tenant at the end of the lease or within reasonable time thereafter, whether or not the tenant asks for its return.
To avoid any disputes, the tenant should thoroughly inspect the apartment with the landlord before moving in and document any pre-existing conditions. Upon vacating, the tenant should leave the apartment in clean condition, removing all personal belongings and trash from the apartment, and making any minor repairs needed. If the building is sold, the landlord must transfer all security deposits to the new owner within five days, or return the security deposits to the tenants. Landlords must notify the tenants, by registered or certified mail, of the name and address of the new owner. Purchasers of rent stabilized buildings are directly responsible to tenants for the return of security deposits and any interest.
This responsibility exists whether or not the new owner received the security deposits from the former landlord. Purchasers of rent controlled buildings or buildings containing six or more apartments where tenants have written leases are directly responsible to tenants for the return of security deposits and interest in cases where the purchaser has “actual knowledge” of the security deposits. The law defines specifically when a new owner is deemed to have “actual knowledge” of the security deposits (General Obligations Law, Article 7, Title 1).
Editor’s Note: The foregoing is for information purposes only and does not confer an attorney/client relationship. For a legal opinion or advice specific to your situation, please consult with a private attorney at law.