Security Deposit Questions – Answered!
This thorough and pertinent Q&A about the ins and outs of security deposits comes courtesy of our friends over at REBNY – the Real Estate Board of New York – and their weekly ‘Legal Line Question of the Week,’ which is a most useful resource for REBNY members who subscribe to their newsletter. For everyone else, though, we thought we’d do a good deed and disseminate the info. The Q&A below is directly quoted from Neil B. Garfinkel, the Broker Counsel for REBNY:
“Question: Is the landlord required to place a tenant’s security deposit into an interest bearing account?
Answer: If the building contains six or more apartments, then the landlord of the building must place the security deposit into an interest bearing New York bank account. The landlord must pay the tenant interest (to the extent any accrues) on the security deposit at prevailing interest rates. A landlord is entitled to withhold one percent of the security deposit as an administrative fee.
Question: If the building contains less than six apartments, where must the landlord place a tenant’s security deposit?
Answer: If the building contains less than six apartments, then the landlord is not required to place the security deposit into an interest bearing account. Nevertheless, regardless of the number of apartments in the building, a landlord is prohibited from commingling a tenant’s security deposit with their own funds and the landlord must place the security deposit into an account separate from his/her own personal funds.
Question: If a unit owner of an individual apartment in a condominium or co-op rents out his/her apartment, is the unit owner required to place the tenant’s security deposit into an interest bearing account?
Answer: Although a unit owner can take the position that they are not the landlord of a building containing six or more apartments (in that they only own one apartment in a building which may contain six or more apartments), New York law is not clear on this matter. Accordingly, as a preventive measure, unit owners who collect security deposits from their tenants may want to open a separate interest bearing New York bank account and place their tenant’s security deposit into said account.
Question: At the conclusion of the lease term, is the tenant entitled to a refund of his/her security deposit?
Answer: Yes, except that virtually all lease agreements will state that a landlord may use the security deposit for the reasonable cost of repairs to the apartment beyond normal wear and tear and as payment for unpaid rent and “additional rent” (i.e. fees incurred by the landlord during the term of the lease).
Question: When is the landlord required to return the security deposit to the tenant?
Answer: The security deposit must be returned to the tenant within a reasonable period of time after the conclusion of the lease. “Reasonableness” is a fact-sensitive determination.
Question: Is the landlord prohibited from collecting more than one month’s rent as a security deposit?
Answer: Unless the apartment is rent-stabilized (in which case the security deposit cannot exceed more than one month’s rent), a landlord is free to collect as large of a security deposit as a tenant is willing to pay.”
There you have it, folks. Thanks to REBNY for the info, and we’re more than happy to share our knowledge as well…so if you have any questions or needs with your NYC real estate challenge, better call Paul…Paul Soley, that is, Curzon’s Managing Director. And the pun was his idea.