Security deposit compliance in New York is more demanding than most property managers realize, and the Attorney General’s office has the complaint data to prove it.
Since 2023, nearly 5,000 New York renters filed security deposit complaints, and the AG has recovered over $2.1 million from landlords and managers who got it wrong.
Here’s what the law requires you to do:
- Collect no more than one month’s rent as a security deposit
- Notify the tenant in writing of the bank name, address, and account number within 30 days of receiving the deposit
- Hold funds in a compliant, interest-bearing NYC escrow bank account (for portfolios with six or more units)
- Pay or credit interest to the tenant annually, or at move-out
- Return the deposit within 14 days of move-out with a written itemized statement
- Report unclaimed deposits to the state after a three-year dormancy period under New York’s Abandoned Property Law
That’s the statutory checklist. This guide covers what each of those obligations actually looks like in practice, and where most property managers get exposed.
In November 2025, Governor Hochul signed S952B, extending full HSTPA deposit protections to rent-stabilized units, covering almost one million apartments statewide that were previously operating under a different set of rules. The compliance surface just got bigger.
The Compliance Lifecycle: An Operational Checklist for Property Managers
New York’s security deposit laws are governed primarily by the General Obligations Law (GOL) §§7-103 through 7-108, amended significantly by the Housing Stability and Tenant Protection
Act of 2019 and updated again by S952B in November 2025. For a full statutory breakdown of New York security deposit law, see our complete guide to New York security deposit laws. This guide focuses on what those rules mean operationally.
The most important rule in NYC is that landlords must transfer all security deposits to a separate account, every time.
Move-In
- Collect no more than one month’s rent as a security deposit. No exceptions for unit type, building size, or pets.
- Open a separate FBO escrow account at a New York state bank. For buildings with six or more units, the account must be interest-bearing.
- Do not commingle deposit funds with operating funds at any point.
- Within 30 days, provide the tenant with written notice of the bank name, address, and account number.
- Conduct a move-in inspection. Document unit condition with a dated, signed report and photos. Both parties sign.
During the Tenancy
- Track interest accrual on each deposit annually. Required rate: 5% per annum or 75% of the prevailing passbook savings rate, minus a 1% admin fee you may retain.
- Pay or credit interest to the tenant annually, or hold it to pay at move-out. The obligation accumulates either way.
- If the property is sold, transfer all security deposits to the new owner within five days. Notify the tenant of the new owner’s name and address. The new owner is responsible for return of security deposits regardless of whether funds were physically transferred.
Move-Out
- Offer a pre-move-out inspection with at least two weeks notice. For rent-stabilized units, this is now mandatory under S952B (effective November 2025).
- Conduct the move-out inspection using the same format as move-in. Document condition with photos.
- Calculate deductions for unpaid rent, damage beyond normal wear and tear, and permitted lease violations only.
- Return the security deposit within 14 days of the tenant’s vacate date.
- Deliver a written itemized statement of all deductions within the same 14-day window. Both the deposit return and the statement must happen within 14 days, not one or the other.
Post Move-Out
- If the deposit refund check goes uncashed, start tracking the dormancy clock. Deposits unclaimed for three years become reportable state property. See the unclaimed property section below for full reporting requirements.
If you’re managing 500 units or more, the manual process breaks down fast. See how property managers at scale are handling deposit compliance end to end with Rentable.
Laws Regarding Security Deposits: How PMs, Landlords, and New York Tenants Work Together
A clean deposit process requires all three parties to know their role. When one drops the ball, the PM absorbs the friction.
The PM’s role is process ownership. That means standardized move-in and move-out inspection forms that both parties sign, written notices logged in the tenant file the same day they go out, interest calculations that run on a schedule rather than when someone remembers, and return deadlines tracked systematically across every active unit. The PM who runs a tight process protects everyone in the chain. The PM who doesn’t is the first call when something goes wrong.
The landlord’s role is alignment with that process. In practice this is where deposit disputes are born. A landlord who makes verbal promises about deductions, delays signing off on returns, or isn’t looped in when a deposit check goes uncashed creates problems the PM then has to solve. Good landlord-PM coordination means agreed-upon documentation standards, a clear decision chain for disputed deductions, and shared visibility into where every deposit stands at every stage.
New York tenants have rights that actively shape the process, and PMs who understand those rights in advance have fewer disputes at move-out. A tenant may request a move-in inspection before moving in. A tenant must be offered a move-out inspection with at least two weeks notice. A tenant can dispute any deduction from the security deposit and file a complaint directly with the New York state attorney general’s office if a landlord cannot provide documentation. Briefing tenants on what to expect at move-in, and what their rights are throughout the tenancy, is one of the lowest-effort ways to reduce end-of-tenancy friction.
Security Deposits and Interest: What NYC Property Managers Must Return
This is the compliance area with the widest gap between what’s required and what’s actually happening.
For buildings with six or more units in New York, interest on security deposits is not optional. It’s a statutory obligation under GOL §7-105. New York law requires landlords to hold each rent security deposit in an interest-bearing account at a New York state bank.
The required rate is 5% per annum, or 75% of the prevailing passbook savings rate, whichever applies based on current banking rates. Property managers are permitted to retain 1% of the deposit amount annually as an administrative fee. The remainder must be paid or credited to the tenant.
Interest must be paid or credited annually, or at the time of deposit return. The PM has discretion on timing, but the obligation accumulates regardless.
The compliance gap here is significant. According to research from Roost, only 5.6% of renters nationally ever receive interest on their security deposits, despite it being legally required in New York and 13 other states. For NYC property managers managing buildings with six or more units, that’s not just a compliance miss. It’s a statutory violation.
The exposure isn’t theoretical. In March 2025, a federal class action was filed in the Southern District of New York (Gupta v. Ocean Prime) specifically targeting a property manager for failure to use interest-bearing accounts. The case argues that even if a deposit is eventually returned, the failure to hold it in a compliant account constitutes an independent violation. The class covers hundreds of tenants.
The calculation itself isn’t complicated. A $3,900 deposit (the current NYC median rent) at 5% annual interest equals $195 per year. Minus the 1% admin fee ($39), the PM owes $156 to the tenant annually. Across a 200-unit portfolio, that’s a $31,200 annual obligation if all units are occupied. Missed for three years, with penalties, it becomes a different number entirely.
Escrow Account Requirements
The escrow account requirement in New York is clear: for buildings with six or more units, security deposits must be held in a separate, interest-bearing bank account titled FBO (For Benefit Of) the tenants.
“Separate” means separate from operating accounts. Not a different line item in the same account. A different account entirely, at the bank level.
“FBO” means the account is legally structured to protect tenant funds. If the property owner goes into bankruptcy or financial distress, FBO-titled accounts are protected from creditors. This structure isn’t just good practice. It’s what the law requires.
Commingling security deposit funds with operating funds is a violation independent of whether you eventually return the deposit correctly. The commingling is the violation. Courts and the state Real Estate Commission conduct random escrow audits. If your account structure doesn’t hold up to scrutiny, the fact that you paid interest and returned the deposit on time doesn’t cure the escrow violation.
The Gupta v. Ocean Prime federal class action (March 2025) reinforces this. The lawsuit targets not just the failure to pay interest but the failure to properly structure the account. Two separate potential violations. One fact pattern.
Deductions: What Landlords May and May Not Include
Under GOL §7-108, New York property managers can make deductions from the security deposit for unpaid rent, damage beyond normal wear and tear (with documentation), unpaid utilities charged to the tenant under the lease, and cleaning costs that exceed reasonable use (with receipts and invoices).
That’s the list. Everything else is not deductible. A landlord cannot keep the security deposit for reasons outside this framework, and any deposit retained beyond lawful deductions must be returned with an itemized explanation.
The one-month cap applies to the full amount of the security deposit and total deductions combined. If the deposit is $3,900, the maximum a landlord can keep is $3,900. There’s no supplemental charge for cleaning, pets, or anything else beyond what’s in the deposit. A landlord cannot use the security deposit to cover costs that aren’t specifically permitted under New York landlord-tenant law.
This has gotten more important since June 2025. The FARE Act, which took effect in June 2025, prohibits landlord-hired brokers from charging fees to tenants and limits total permissible upfront charges to first month’s rent plus one month’s security deposit. No pet deposits. No cleaning deposits. No broker fees. The security deposit is now the only financial cushion a property manager has. Every deduction needs to hold up, because there’s nothing else to fall back on.
What’s never deductible:
Normal wear and tear. New York law is clear on this, but the definition matters in practice. Normal wear and tear includes paint fading over several years of occupancy, minor scuffs on walls, worn carpet in high-traffic areas after four or more years, small nail holes from picture hanging, and loose door handles from regular use. None of these are deductible. A wall with a large hole punched through it is damage. A wall with paint that’s three years old is not.
S952B Update (November 2025):
Rent-stabilized units now require a pre-move-out inspection AND a written itemized statement of any deductions. This wasn’t previously required for stabilized tenants. If your team doesn’t have a documented move-out inspection process that covers stabilized units, every stabilized turnover since November 2025 is a potential exposure.
The AG’s enforcement data makes the stakes clear. The Fairfield Properties enforcement action recovered $422,598 for 899 tenants, with improper deductions and missing itemized receipts as the core violations. Security deposits ranked in the AG’s top 10 consumer complaints for 2024.
Return Deadlines and Liability
The 14-day rule is the compliance requirement most NYC property managers know about. It’s also the one most commonly violated, because it’s not just a guideline. It’s strict liability.
Under GOL §7-108, a property manager has 14 calendar days from the tenant’s vacate date to return the deposit and deliver a written itemized statement of any deductions. Both. Within 14 days. Not one or the other.
When a landlord fails to meet this deadline, the consequences are immediate. The landlord cannot keep the security deposit or any portion of it, even if the underlying deduction claims were legitimate. New York tenants can demand return of the full amount of the security deposit, file a complaint with the New York state attorney general’s office, or pursue the return of security deposits through small claims court. If a landlord refuses to return the security deposit or provides an incomplete itemized statement, the tenant’s path to recover their deposit is straightforward and the legal exposure for the property manager grows with every day past day 14.
The Appellate Division, Second Department has ruled that this deadline is strict liability. There’s no “reasonable effort” standard. There’s no grace period. There’s no consideration of whether the lateness was intentional.
In a recent case, a landlord lost the right to make any deductions because the itemized statement arrived on day 20 instead of day 14. Six days late. Full forfeiture. The court didn’t consider whether the deductions themselves were legitimate. The deadline was missed, so the deductions were void.
In Karole v. West End Ave, a court awarded 2x punitive damages for a willful violation. The tenant received twice the withheld amount.
The seasonal dimension of this matters for operational planning. NYC lease turnover peaks between May and September. For a 500-unit portfolio at 20% annual turnover (100 move-outs per year), roughly 60-70 of those move-outs cluster into an 8-10 week summer window. That’s 7-9 active 14-day deadlines running simultaneously at peak. Without a systematic process, the window for a missed deadline isn’t theoretical. It’s predictable.
What’s coming: A8078, currently in committee in the New York State Assembly, would extend the return deadline from 14 to 21 days while simultaneously adding mandatory pre-exit walk-throughs, treble damages for willful retention, and a requirement for HCR to maintain a public list of violating landlords. The bill hasn’t passed, but the direction of travel in Albany is toward more enforcement, not less.
Unclaimed Property: The Obligation Nobody Talks About
Here’s the obligation that almost no property management training covers, and almost no property management software tracks.
When a tenant moves out and you mail their security deposit refund check, and that check goes uncashed, the clock starts. Under New York’s Abandoned Property Law §1315(2), a security deposit held for a tenant who has vacated and not claimed the deposit for three years becomes reportable abandoned property. The funds must be reported to the New York State Comptroller and remitted to the state by November 1 of the reporting year.
Most property managers don’t know this exists.
The exposure is real and it’s scaling. In SFY 2024-25, the New York Office of Unclaimed Funds collected $127 million from audits of non-compliant holders. Audit lookbacks now extend 15 or more years. Penalties for willful failure to file run $100 per day. Late-reported property accrues 10% annual interest.
There’s an additional False Claims Act dimension. Whistleblower actions under the Act allow for 3x damages plus $6,000 to $12,000 per violation, and qui tam cases against holders with material unclaimed property exposure have been successfully litigated in New York.
The KAPS transition (July 2025):
Effective July 1, 2025, the New York State Comptroller switched to the Kelmar Abandoned Property System (KAPS) for unclaimed property reporting. Only NAUPA-formatted reports are now accepted. Legacy NY-format reports are rejected. If your team is still using the old reporting format, your filings aren’t going through.
The safe harbor:
The Comptroller’s Voluntary Compliance Program allows holders to self-report past-due unclaimed property free of interest and penalties. In SFY 2024-25, 184 companies enrolled and reported $36 million. The VCP is available until the moment you receive an audit contact letter. Once that letter arrives, VCP eligibility ends.
Summer 2025 was the three-year anniversary of summer 2022 move-outs. Those unreturned deposits are now reportable. If you haven’t audited your records for dormant deposits from 2022 and earlier, the window to do it cleanly through the VCP is open, but not indefinitely.
For a complete walkthrough of the dormancy clock, KAPS reporting, penalties, and how to use automate compliance before an audit lands, see our guide on unclaimed property obligations in New York.
How Property Management Software Fits In
Yardi is the dominant property management platform in New York City. It handles accounting, rent collection, maintenance workflows, lease management, and financial reporting. For large NYC portfolios, it’s the operational backbone.
It doesn’t automate security deposit compliance.
Yardi records the deposit as a liability on the tenant ledger. It records the return when you process it. What it doesn’t do: calculate state-mandated interest on a per-unit, per-year basis. Flag when a deposit is approaching the 14-day return deadline. Identify dormant deposits approaching the three-year escheatment threshold. Generate NAUPA-formatted reports for the NY Comptroller. Monitor the KAPS reporting calendar.
That’s not a criticism of Yardi. It’s an accounting and property management platform. These are compliance obligations that live outside the transaction layer.
The gap matters at scale. A 300-unit NYC portfolio at 25% annual turnover processes 75 deposit returns per year. At peak summer volume, 50 of those happen in 10 weeks. Tracking interest accrual, 14-day deadlines, and dormancy clocks manually (in spreadsheets, in calendar reminders, in someone’s memory) is where compliance breaks down.
Rentable is built to sit alongside your existing Yardi setup and cover the compliance layer. It integrates natively with Yardi, tracks the full deposit lifecycle from collection through escheatment, calculates interest automatically by jurisdiction, and monitors the dormancy clock on every deposit in your portfolio. Property managers don’t pay for it.
The frame isn’t “replace Yardi.” It’s: Yardi tracks the transaction. Rentable protects the obligation.
The Compliance Arc Doesn’t End at Move-Out
Most property managers think about security deposits in two moments: the day they collect it, and the day they return it.
The compliance obligation runs the full arc. Collection. Holding. Annual interest. Move-out inspection. 14-day return. Post move-out dormancy tracking. Three-year escheatment reporting. Each step has its own deadline, its own documentation standard, and its own penalty structure.
At Manhattan’s current median rent of $4,995, the average NYC security deposit is approaching $5,000. Across a 200-unit portfolio, that’s close to $1 million in held funds with compliance obligations attached to every dollar.
That’s not a spreadsheet problem. It’s an infrastructure problem.
Sechedule a Demo with our team and gain compliance freedom!
New York FAQs: Security Deposit Rules for Property Managers
What are the security deposit laws for property managers in New York?
New York security deposit laws require property managers to collect no more than one month’s rent as a security deposit, hold it in a separate bank account (interest-bearing for buildings with six or more units), provide the tenant with written notice of the account details within 30 days, return the deposit within 14 calendar days of move-out with an itemized deduction statement, and report unclaimed deposits to the state after a three-year dormancy period. S952B (effective November 2025) extended these security deposit rules to rent-stabilized units.
Does Yardi handle security deposit compliance in New York?
Yardi tracks security deposits as accounting entries and records returns when processed. It doesn’t automatically calculate state-mandated interest, flag 14-day return deadlines, identify deposits approaching the three-year escheatment threshold, or generate NAUPA-formatted reports for New York’s unclaimed property system. The compliance layer requires a separate solution.
What happens if a landlord fails to return the security deposit within 14 days in NYC?
New York courts treat the 14-day rule as strict liability. If a landlord refuses to return the security deposit or delivers the itemized statement after day 14, the landlord forfeits the right to keep the security deposit or make any deductions, regardless of whether the underlying claims were legitimate. New york tenants can recover the full security deposit back through small claims court or by filing a complaint with the New York state attorney general’s office. In cases of willful violation, courts have awarded 2x punitive damages. Pending legislation (A8078) would increase this to treble damages.
Are property managers required to pay interest on security deposits in New York?
Yes, for buildings with six or more units. Under GOL §7-105, the landlord must hold the rent security deposit in an interest-bearing account earning 5% per annum (or 75% of the prevailing passbook savings rate). Property managers may retain 1% annually as an administrative fee. The landlord must pay the tenant the remaining interest annually, or at the time the deposit is returned.
What is security deposit escheatment in New York?
Escheatment is the process by which unclaimed security deposits become state property. Under New York’s Abandoned Property Law §1315(2), a security deposit that has gone unclaimed for three years after the tenant’s move-out must be reported to the NY Comptroller and remitted to the state. The annual reporting deadline is November 1. Failure to report triggers penalties of $100 per day and 10% annual interest on unreported amounts, with audit lookbacks extending 15 or more years.
Last updated: March 2026. This guide reflects New York General Obligations Law as amended by S952B (effective November 15, 2025). It is intended as operational guidance for property managers and does not constitute legal advice. Consult a qualified attorney for advice specific to your situation.
