As a New York landlord, you’ll want to collect a security deposit from your tenants. This deposit will cushion you against potential liabilities caused by your tenant’s actions, such as:
- Failing to pay their monthly rent.
- Abandoning the unit.
- Terminating their lease agreement before the end of the period.
- Causing negligent or careless property damage.
If your tenant does any of these, you can make deductions from their security deposit to cover the cost. If that’s not enough to cover the cost of the liability, especially in case of excessive property damage, you can take the case to court.
Sometimes a tenant may object to the costs or the deductions from their security deposit. As a result, you may end up going to court regardless. To minimize such conflicts, the state of New York has a rather straightforward security deposit law as a part of the state's landlord-tenant laws that you can follow. Keep reading to learn the answers to some of the most commonly asked questions regarding security deposits.
Does New York have a limit on how much a landlord can charge tenants as a security deposit?
Generally speaking, New York doesn’t limit how much landlords can charge their tenants as a security deposit. Therefore you can charge as much as you see fit.
That being said, apartments with rent stabilization policies do have regulations regarding the amount you can charge as a security deposit. For these types of apartments, you can only collect the equivalent of one month’s worth of rent as a security deposit.
However, you may be able to ask for a higher security deposit if the lease agreement came into place prior to the unit being rent-stabilized. In such a case, the existing terms will continue into effect until the term of the lease agreement ends.
Can a New York landlord charge a non-refundable security deposit?
In the state of New York, security deposits are considered the tenant’s property. Therefore, it’s illegal for you to charge a non-refundable security deposit. Therefore you must return either the entire deposit or part of it to the tenant at the end of the term of their lease agreement.
How should landlords store a tenant’s security deposit?
The New York security deposit law also stipulates how you should store your tenant’s security deposit. The law requires that you store the security deposit at a banking facility located within the state’s boundaries. You must not mix this deposit with any other funds or use it for any personal purposes.
For properties with six or more units, you must place the deposit in an interest-bearing account. The interest earned on the amount must match those of comparable properties in the area. Both the landlord and the tenant are entitled to the interest. You can collect 1% of the annual fee, while your tenant will take the remaining share.
A tenant has several options regarding what they can do with the interest they earn. They can ask you to hold it for them until the lease expires. They can also request that you put the money forward as rent. Lastly, they can ask that you pay them the money at the end of each year.
If you have a property with less than 6 units, you are not required to place the money into an interest-bearing account.
Does a landlord need to notify the tenant upon receipt of their deposit?
Yes. Once you deposit the tenant’s security deposit, you must notify your tenant in writing that you have done so. In this notice, you must state the amount deposited, as well as the name and address of the banking institution holding the tenant’s deposit.
What are some of the reasons that a landlord can keep a security deposit?
As a landlord, you may be able to keep part or the whole of the tenant’s security deposit under certain conditions. For example, you can use the security deposit to cover:
- Unpaid utilities. When a tenant is moving out, they need to pay all their utility bills such as those for electricity and gas. If they don’t, you have every right to deduct the appropriate amounts from their security deposit.
- Excessive cleaning costs. Generally, lease agreements require tenants to return the premises in the condition they found them originally. If the tenant leaves your property in deplorable conditions, you have every right to deduct the appropriate cleaning costs from their security deposit.
- Lost rent payments. A tenant’s failure to honor their obligation to pay rent is a serious violation of the lease agreement. It’s also a common problem that New York landlord’s face. If this is the case, you can use the security deposit to cover this.
- Lost rental income. If the tenant abandons the property and you lose rental income, it is within your legal right to make appropriate deductions from the deposit for that.
- Excessive property damage. Examples include chipped countertops, holes in the walls, unauthorized paint colors, and chipped tiles. Click here to learn the difference between normal wear-and-tear and excessive property damage.
Is a walk-through inspection necessary in the state of New York?
A walk-through inspection helps you to document any damage the tenant may have caused during their tenancy. Some states require this, however, New York does not.
When should landlords return the tenant’s security deposit?
You must return the security deposit back to the tenant within a “reasonable time” after they move out. Unlike most other states, the law does not specify just exactly what “reasonable time” means. Use your best judgment in this case.
What happens when the property changes hands?
You must do two things regarding the security deposit in the event that the property changes hands during a tenancy. First, you need to transfer the deposit to the incoming property owner. Then you must notify all impacted tenants of this change via registered or certified mail. In your written notice, you must also state the name and address of the incoming owner.
Conclusion
Understanding the security deposit laws in New York will help you own a successful rental property. It will also ensure you don’t run into any legal issues with your tenants.
If you need further clarification on these laws, please consider hiring expert services from a licensed attorney or a professional property management company with legal knowledge, such as Essential Property Management. We would be happy to answer your questions regarding New York’s security deposit laws.