Understanding Security Deposits in NYC
As a landlord with property in New York City, it is essential for you to have a thorough understanding of NYC security deposit law. Without a proper understanding, you could potentially lose out on money that is rightfully yours or you may find yourself in legal trouble for violation of the laws. To that end, here are some basics that you should know.
Security Deposit Limits
According to NYC security deposit law, there is no limit on the maximum amount that a landlord can charge for a security deposit. In the case of rent stabilized apartments, however, the maximum amount is typically capped off at one month’s rent. If a security deposit was collected prior to the apartment becoming rent stabilized, however, the original lease and security deposit amount is upheld until the lease is terminated.
Storing the Security Deposit
In the state of New York, the security deposit is considered the property of the tenant. As such, the landlord cannot charge a nonrefundable deposit. Also, the money must be placed in a trust within the state of New York for the term of the rental agreement. The money cannot be commingled with the landlord’s personal money and the landlord cannot use the money as if it is his or her own.
In the case of rental properties with six or more units, the security deposit must be placed in an interest-bearing account with a rate that is equivalent to the prevailing interest rate for similar deposits. Any interest earned on the deposit is the property of the tenant. The tenant can choose to have this money held in the trust until the end of the lease, to have it put toward rent or sent as a payment to the tenant each year. In this case, the landlord does have the right to collect an annual fee on the account that is equivalent to one percent of the security deposit.
According to NYC security deposit law, the landlord must provide the tenant with a written notice of receipt after receiving the security deposit. This notice must include all of the following:
- The name of the banking institution where the money has been deposited
- The address of the banking institution
- The total amount that has been deposited
If you sell your investment property or if it otherwise changes ownership, you must transfer the security deposits over to the new owner and notify tenants in writing about the change of ownership in certified or registered mail. This notification must include both the name and address of the new owner.
Keeping and Returning Security Deposits
Under NYC security deposit law, a landlord can keep a security deposit if the tenant causes damage that is beyond normal wear and tear. The security deposit may also be kept in order to cover unpaid rent or due to other breaches of the lease agreement. If there are no reasons for withholding the security deposit, you must return it at the termination of tenancy or within a “reasonable time” after. The law does not give an exact number of days by which it must be return.