8 Basics of New York's Security Deposit Law

What Every New York Landlord and Tenant Needs to Know

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New York area landlords and tenants need to understand the proper rules for security deposits in the state. With so much going on, it can be easy to overlook the basics. Learn eight security deposit laws every New York landlord must follow.

8 Basics of New York's Security Deposit Law: 

  1. Maximum Security Deposit: No Limit
  2. Nonrefundable Deposit: Not Allowed
  3. Storing Deposits: In a separate bank account. Deposit must earn interest if the rental property has 6 or more units.
  4. Written Notice: Yes, must send notice to the tenant after receipt of deposit.
  5. Keeping Deposit: Damages, Unpaid Rent, Other Breaches to Lease.
  6. Walk-Through Inspection: Not Required
  7. Returning Deposit: Within a Reasonable Time
  8. Selling Property: Landlord must transfer all deposits to the new owner and notify tenants in writing that their deposits have been transferred. 

    1. Is There a Security Deposit Limit in New York?

    No. There is no statewide limit as to the maximum amount a landlord can charge a tenant as a security deposit.

    Different rules may apply in rent stabilized apartments. For such apartments, the maximum amount a landlord can charge as a security deposit is one month’s rent. The exception to this rule is if the landlord collected a larger security deposit, up to two months’ rent, from the tenant before the apartment became rent stabilized. In this case, the landlord and tenant must follow the original security deposit until the termination of the lease.

    2. Can You Charge a Nonrefundable Deposit?

    No. A landlord in the state of New York cannot charge a tenant a nonrefundable security deposit. In the state of New York, the security deposit is always considered the property of the tenant. The landlord is responsible for placing this deposit in a trust for the term of the lease or rental agreement.

    3. How Must You Store the Security Deposit in New York?

    The security deposit must be stored at a banking institution that has a location within the state of New York. The deposit must not be commingled with any personal money of the landlord and the landlord must not attempt to use the money from the security deposit as if it is his or her own.

    • Interest-Bearing Account- For rental properties with six or more units, landlords must place tenants’ security deposits in an interest-bearing account. The account must earn interest at a rate that is equivalent to the prevailing interest rate for similar deposits in the area. A landlord is not required to place a tenant’s security deposit in an interest-bearing account if the property has fewer than six units.
    • Who Gets the Interest?
      • Tenant- The remaining interest earned belongs to the tenant. The tenant has three options for this interest. The landlord can:
        • -Hold this money for the tenant in the trust until the end of the lease.
        • -Put this money toward the tenant’s rent.
        • -Or pay this interest to the tenant each year.
    • Landlord- If the account does bear interest, the landlord is allowed to collect an annual fee that is equivalent to one percent of the security deposit.

    4. Is Written Notice Required After Receipt of the Security Deposit in New York?

    Yes. If a landlord deposits a tenant’s security deposit in a banking institution, the landlord must notify the tenant in writing. This written notice must include:

    • The Name of the Banking Institution
    • The Address of the Banking Institution
    • The Total Amount of Money Deposited

    5. Reasons New York Landlords Can Keep Tenant's Security Deposit

    In the state of New York, a landlord can keep all or a portion of a tenant’s security deposit for damage in excess of normal wear and tear or to cover unpaid rent. The landlord may be able to withhold all or part of the security deposit for additional breaches of the lease agreement.

    6. Is a Walk Through Inspection Required in New York?

    No. Landlords in the state of New York are not required to perform a walk through inspection prior to a tenant’s move-out.

    7. When Must You Return a Tenant’s Security Deposit in New York?

    Landlords in the state of New York must return a tenant’s security deposit at the termination of tenancy or within a “reasonable time” thereafter. The law does not specify an exact number of days.

    8. What Happens to the Security Deposit If You Sell Your Property?

    If an investment property is sold or otherwise changes ownership, the landlord must do two things within five days of the transfer of ownership.

    1. Transfer all security deposits over to the new owner.
    2. Notify all tenants whom he or she has received a security deposit from, in writing, by certified or registered mail, of the change in ownership. In this written notice, the landlord must provide the tenant with:
      1. The Name of the New Owner/Owners.
      2. The Address of the New Owner/Owners.

    Different rules may apply if a property has been foreclosed on, so you should seek legal counsel if your property has been foreclosed on or if you are buying a foreclosure to determine the appropriate actions.

    What Is New York's Security Deposit Law?

    For the original text governing security deposit laws in the state of New York, please consult New York General Obligations Law §§ 7-103 to 7-108.