TL;DR: New York Security Deposit Law
- Maximum deposit: Landlords cannot charge more than one month’s rent as a security deposit. Different rules may apply for an owner-occupied cooperative apartment.
- Storage: Security deposits must be kept in a separate, interest-bearing escrow account at a New York state bank.
- Notification: Landlords must disclose the bank name, address, and account number within 30 days of receiving the deposit.
- Returns: Security deposits must be returned within 14 days of move-out with an itemized statement of deductions. Landlords must give at least two weeks notice before a move-out inspection.
- Allowable deductions: Unpaid rent, damages beyond normal wear and tear, and lease violations.
- Interest on security deposits: Required for buildings with six or more units. Tenants receive annual interest minus a 1% admin fee.
- Penalties: Failure to comply may lead to forfeiture of the deposit and potential civil action.
Overview of New York’s Security Deposit Laws
New York security deposit law is among the strictest in the country, designed to ensure fairness and transparency in rental transactions. New York rent laws set the foundation for how landlords and tenants must handle deposits, outlining exactly how landlords must collect, store, and return deposits and the penalties for mishandling them.
New York state security deposit law applies to various types of rental housing, including rent-controlled buildings, rent-stabilized buildings, and rent-regulated tenants, each of which may have additional protections or requirements.
Under the NYS General Obligations Law §7-103 to §7-108, landlords face strict procedures for protecting tenant funds. The laws regarding security deposits set clear rules for returning security deposits, including specific timeframes and documentation requirements. Non-compliance can result in forfeiture of rights to the deposit and exposure to civil penalties.
This guide covers:
- How much landlords can charge
- Where deposits must be stored
- Rules and procedures for returning a tenant’s deposit
- Interest on security deposits in New York
- Penalties for non-compliance
Rental Deposits in New York: Limits and Storage Requirements
Maximum Deposit
New York landlords may not charge more than one month’s rent as a security deposit for residential leases. The amount of the deposit cannot exceed one month’s rent. If a rent increase occurs during a lease renewal, landlords may collect additional security from tenants to adjust the deposit amount accordingly. Landlords should know that a rent increase does not automatically authorize collecting a larger deposit mid-tenancy without proper notice.
Storage
Security deposits in New York, including any additional security collected, must be kept in a separate, interest-bearing account in New York state. New York law requires landlords to place security deposits in an account that cannot be mixed with personal or operating funds. Deposits in interest-bearing accounts must remain in a New York state bank for the duration of the tenancy.
Tenant Notification
Within 30 days of receiving the deposit, landlords must notify tenants in writing with the bank name, address, and account number. Landlords must inform tenants of any changes to the account.
The terms of the deposit, including the deposit amount and any conditions, should be outlined in a written agreement between the landlord and tenant.
If a rental property is sold, the new owner becomes responsible for the tenant’s security deposit, even if the deposit was not transferred. Landlords must notify tenants of any transfer using registered or certified mail. The landlord must transfer all security deposits to the new owner within five days of the sale. Any interest earned on the security deposit must also be transferred to the new owner as appropriate.
Law Reference: N.Y. Gen. Oblig. Law §7-103(2)
When the Tenant Moves Out: Returns and Allowable Deductions
Return deadline: Security deposit must be returned within 14 days after the tenant vacates the property. The landlord must return the deposit or provide an itemized statement of deductions within the same window. New York state law requires landlords to act promptly and communicate their intention to deduct from the deposit.
Permissible deductions: Deductions from the security deposit are limited to reasonable, itemized costs related to unpaid rent, tenant-caused damage, utility charges payable directly to the landlord, and moving or storage of the tenant’s belongings. Deductions to cover unpaid rent or lease violations may also be retained if reasonable and itemized.
Prohibited deductions: New York landlords cannot use the deposit to cover damages caused by a prior tenant or for ordinary wear and tear, such as faded paint, worn carpets, or small scuff marks. Landlords cannot use the deposit for the final month’s last month’s rent unless agreed in writing. Return the full security deposit if no deductions apply.
Itemized statement: Landlords must return the deposit or provide an itemized statement indicating all deductions and the remaining portion of the deposit within 14 days after the tenant vacates. A statement produced during the inspection process is admissible in proceedings related to deposits.
Move-out inspection: A move-out inspection must be offered before the tenant vacates. The tenant has the right to be present, with at least two weeks notice given. Tenant requests for an inspection must be honored. Days after the tenant vacates the property, no inspection can substitute for failure to offer one in advance.
Things to Keep in Mind
If a tenant terminates the tenancy, the landlord must follow the inspection and return procedures. Minor repairs are the tenant’s responsibility if specified in the lease. Wood floor scuffs are generally considered normal wear and tear and should not be deducted.
When a tenant moves out, the landlord must return the deposit and provide documentation of any deductions. Tenants should keep repair receipts to dispute deductions.
Law Reference: N.Y. Gen. Oblig. Law §7-108(1-a)
Interest on Security Deposits in New York
Interest requirement: For buildings with six or more units, landlords must place security deposits in interest-bearing accounts. The deposit must accrue annual interest. Tenants receive the interest earned on the security deposit, minus a 1% administrative fee that landlords may retain. At the end of the tenancy, any accrued interest must be paid to the tenant.
Move-in inspection: Tenants may request a move-in inspection before moving into a new rental property. The results should be documented in a written agreement, recording the property’s condition to protect both parties.
Tenant participation: Tenants can review and return the inspection form, strengthening their protection at move-out. Tenants should keep repair receipts as part of their documentation in case of security deposit disputes.
Failure to document: If the landlord does not provide required documentation or return the deposit within 14 days, they forfeit any right to keep any portion of the deposit retained.
Law Reference: N.Y. Gen. Oblig. Law §7-108(1-a)(c)-(d)
If You’re a Property Manager, the Stakes Are Higher
New York security deposit compliance looks different when you’re managing multiple units rather than a single rental property. The same law requires landlords to comply at every unit, every turnover, every year, and the exposure compounds at scale. New York renters filed nearly 5,000 security deposit complaints with the Attorney General since 2023, and most traced back to operational gaps at the property management level.
Here’s where property managers most commonly face security deposit issues:
Interest tracking at volume. New york state law requires landlords to pay annual interest on deposits for buildings with six or more units. Across a 100-unit portfolio, that’s 100 individual interest calculations per year. Missing them isn’t just an oversight. It’s a statutory violation on each affected deposit.
The 14-day deadline at peak season. NYC lease turnover concentrates between May and September. A 300-unit portfolio at 20% annual turnover means roughly 50 deposit return deadlines running simultaneously in a 10-week window. The law requires landlords to return the security deposit within 14 days of move-out for every one of them.
The post move-out tail. New york landlords often don’t realize that when a deposit refund check goes uncashed, the obligation doesn’t disappear. Under New York’s Abandoned Property Law, unclaimed deposits become reportable state property after three years. This is one of the most common key security deposit compliance gaps in the industry, and one of the least covered.
S952B (effective November 2025). New york security deposit law now applies full HSTPA protections to rent-stabilized units. If you manage a mixed portfolio, your workflows for stabilized units need to reflect the updated law, including the move-out inspection requirement and itemized statement obligations.
For a deeper operational guide covering interest calculations, escrow setup, return workflows, and unclaimed property obligations, see our NYC property manager’s guide to security deposit compliance.
Penalties for Mishandling Security Deposits in New York
New York state enforces significant penalties for landlords who fail to comply with security deposit law:
- Failure to return the security deposit within 14 days means landlords lose all rights to retain any funds. Tenants can send a demand letter requesting return of their security deposit.
- Violations of escrow or interest on security deposits rules can result in civil liability and potential lawsuits. Punitive damages may be awarded if the landlord intentionally violates the law.
- Tenants may recover the full deposit and pursue further damages for deposit handling violations.
- Tenants may bring security deposit disputes to small claims court for amounts owed.
- Tenants can also file complaints with the New York state attorney general for enforcement of their rights.
- The Rent Guidelines Board publishes guidance on deposit limits and landlord obligations for rent-regulated tenants.
Law Reference: N.Y. Gen. Oblig. Law §7-108(1-a)(e)
Key Security Deposit Takeaways for New York Landlords
- Deposits are capped at one month’s rent as a security deposit, even for rent-regulated apartments.
- Security deposit in a separate, interest-bearing account at a New York state bank is required.
- Must return the deposit or provide an itemized statement within 14 days after the tenant vacates.
- Interest on security deposits must be paid for larger buildings, minus a 1% admin fee.
- Non-compliance can result in forfeiture of deposit rights and possible legal penalties.
By following New York’s security deposit compliance requirements, landlords can avoid costly deposit disputes, while tenants can feel confident their funds are protected.
Managing Deposits Across Multiple Properties?
Security deposit compliance gets harder to track as your portfolio grows. Rentable works alongside your existing property management software to automate interest calculations, monitor return deadlines, and track unclaimed property obligations across every unit you manage. It’s free for property managers.
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This blog post is intended for informational purposes only and does not constitute legal advice. Readers should seek professional guidance for their specific situation. Information is provided as-is without warranties regarding accuracy, completeness, or reliability. Laws may change or vary by jurisdiction.
