About Security Deposits
A security deposit is a deposit of money to the landlord to ensure that rent will be paid and that the tenant will perform (or will not perform) a
certain act during the tenancy.
A landlord may, pursuant to a written rental agreement, require a security deposit in an amount that generally should not exceed two month’s rent. In New York, there is no statutory limit on what a landlord can charge for security on non-regulated units. In our area of Westchester, what is most common is an amount equal to one month’s rent.
Security Deposit or Last Month’s Rent- these are not the same.
Last month’s rent is pre-payment to the landlord for the last month of tenancy. If a tenant does pre-pay rent, the money cannot be applied as security, but only to the payment of rent as it becomes due. The amount of the last month’s rent and the amount of the security deposit are usually the same and equal to one month’s rent. If the landlord later raises the rent, he or she can require the tenant to increase the amount of both deposits to equal the current rent.
A security deposit is usually taken to cover the costs of repairing tenant damages, if there are any. More often than not, landlords are not aware of tenant damage until the tenant moves out. If the tenant has used the security deposit for their last month’s rent and they move out leaving damages, where does the money come from to make the necessary repairs? That’s right- Out of your pocket! It should be made clear in your lease or your security deposit agreement that the security deposit cannot be transferred to use as the last month’s rent.
Your lease should always specify whether a payment is security deposit or an advance payment on rent. If it is a security deposit, the tenant is usually not entitled to apply it to the final month’s rent. If it is an advance rental, the landlord must treat it as income for tax purposes.
This only reiterates the importance of doing a Pre-move-in inspection with the tenant. The condition of the unit should be documented on an inspection form, and the tenant should sign off on it on the scheduled day of move-in. It is very wise to take photos as well. Be fair and document any existing damages. If you are a member of The Landlord’s Association of Westchester, you can download a free Move-in Inspection Checklist if you need one. You will soon understand how important it is to handle your business correctly from the start of business, and how all these issues interrelate.
Receipts:
When you receive a security deposit you should always give a receipt. Information on the receipt should include the date the payment was received, the amount paid, the intended use, and the name of the person who received the payment. If an agent collects the deposit for a landlord, then the receipt should have the name of the landlord for whom the deposit was collected, the address and unit number it was collected for and the signature of the landlord or agent.
You can also use a Security Deposit Form such as the one the Landlord’s Association of Westchester has posted on our website. These forms cover almost every anticipated problem that may arise regarding the issue and use of security deposits.
Where do you keep the deposit and what’s required of you?
According to the General Obligations Law of New York State:
1) keeping the security deposit in a separate bank account is a legal requirement. You are holding this money “in trust” and it is not to be mingled with your personal money or become an asset of yours. Remember, this money has to be returned to the tenant when they leave, provided they have lived up to their obligations of the lease and the rent is up to date.
2) You are also required to supply in writing to the person who gave you the deposit, the name and address of the banking institution in which the deposit is made, and the amount deposited.
3) If the money is deposited in an interest bearing account, you are entitled to receive, as administration expenses, a sum equivalent to 1 percent annually. The balance of the interest paid by the bank on the account belongs to the person who gave you the money. It can be held in trust until the entire security deposit is returned, or paid annually to the person who gave you the money.
4) If your building is a property containing six or more family dwelling units, you are required by law to deposit the money in an interest bearing account in a bank that has a place of business within the state.
None are these terms can be waived or voided according to state law.
Let the Tenant Know that they will get their deposit back: When you collect a security deposit, let the tenant know that you have every intention on returning the money when they move out, providing that they have not breached the terms of the security agreement.
If there are no damages and the unit is left in the same condition as it was when they moved in, you will gladly, and promptly return the security deposit money. Make them aware of the fact that you will do a walk- thru inspection with them on the day they leave as a way of determining if all is well. Let them know that you will subtract the costs of repairs for tenant damage- which is anything that is not normal wear and tear- from the deposit.
Let them know ahead of time what is considered tenant damage, which will give the well-meaning tenant an opportunity to correct any deficiencies.
Hopefully, this talk will encourage them to take care of your property, because they will be anticipating the return of their money. For more information on what is considered “Tenant Damage” please click on the link.
When do you return the deposit?
In New York, landlords must return the security deposit in reasonable time, which is typically thirty days after the termination of tenancy.
What can I deduct from the deposit?
The landlord can usually deduct for any unpaid rent which has not been withheld validly or deducted under the law, and any reasonable amount necessary to repair tenant damage. You cannot make deductions for items that are considered normal wear and tear.
If damages exist, the landlord must provide within the specified time period:
1) A list of damages including their nature and extent, and the repairs necessary to remedy them
2) Written evidence such as estimates, bills, invoices, or receipts, indicating the actual or estimated cost of repairs.
Pictures of the damages are strongly recommended.
Then you must return the balance of the security money, if there is any. If the landlord fails to return the security money or the balance after the deductions are made – with accrued interest- within the time considered reasonable, or fails to provide the itemized list- according to state law the tenant can sue the landlord.
Be sure to get a forwarding address from the tenant so you know where the check should be mailed.