A Guide to Security Deposit Laws in NY

Get well-versed in New York's key state laws governing security deposits. Learn the specifics, including maximum deposit amounts, account protocols, allowed deductions, and refund regulations.

Nichole Stohler
Last Updated
May 16, 2024
A Guide to Security Deposit Laws in NY

Security deposits represent a hefty chunk of change that both New York renters and property owners have a major stake in.

As a landlord, the security deposit protects you from damage to your property or a tenant's failure to pay rent. But in New York, there are limits on the maximum deposit amount, and you can't just tack on a bunch of other fees. There are also rules around proper storage and handling procedures and when you can make deductions.

Tenants, on the other hand, should know their rights and ways to increase their chances of receiving a full refund upon move-out. Plus, we'll cover tips on what you should do if your landlord doesn't return your money in compliance with New York security deposit laws.

The last thing any New Yorker needs is to get blindsided by baffling regulations. With this guide, you'll stay one step ahead of the game by knowing your rights and responsibilities.

Key New York security deposit laws

Security deposits safeguard landlords against tenant-caused damages and unpaid rent. They're also significant for tenants, as they represent a large amount of money held until the end of the tenancy. Laws guiding both parties are part of New York landlord-tenant regulations, which include:

  • Local laws and ordinances: Various municipal codes and local laws may address security deposit issues.

What is the maximum deposit amount?

For residential properties in New York, landlords can ask for a security deposit equal to one month's rent. However, asking for any amount higher than this is illegal. This maximum security deposit amount also means the landlord cannot ask for additional funds for:

  • Pet deposits.
  • Charging in advance for the last month's rent.
  • Any other special deposit fees.

Handling and storing deposits

New York has specific regulations regarding handling security deposits during the tenancy period. Beyond just collecting the deposit upfront, there are important rules landlords must follow, which include:

Separate storage of security deposits

Under New York law, landlords must keep security deposits separate from their personal or business funds. This means that the landlord must hold the security deposit in a separate interest-bearing account, such as a trust or escrow account. This protects the tenant's money and makes sure that it is not commingled with the landlord's other funds.

Providing deposit information to tenants

The law requires landlords to give tenants written documentation detailing the name and location of the financial institution holding their security deposit and the exact amount of the deposit.

Steps tenants should take before moving out

Before you move out of your rental unit, there are steps you can take to increase your chances of getting your security deposit back.

  • Move-in inspection: When you first move into a new rental property, make sure you conduct a move-in inspection with your landlord to examine every room and document any existing damages. This creates evidence of any damages from the prior tenant so that the landlord can't say they're your fault and attempt to charge you for them when you move out.
  • Take pictures: During your move-in inspection, take photos and record videos.
  • Notification: Your lease agreement requires you to notify the landlord of your plan to move out. This notice period usually ranges from 30 to 60 days and lets your landlord prepare for the next tenant and schedule a move-out inspection. Failure to provide proper notice could result in losing a part or all of your security deposit.
  • Clean thoroughly: Be sure to clean the rental property before you leave. You can also make minor repairs like patching holes in walls or treating wood floor scuffs. Leaving the property in a well-maintained and clean condition increases your chances of receiving your deposit back.

Security deposit deductions

Landlords must be aware of what is and is not permissible regarding deductions from a tenant's security deposit at the end of a lease. There are specific scenarios where deducting costs is allowed, while other situations prohibit deductions by law.

Allowable deductions

According to New York law, landlords can deduct reasonable and itemized costs for the following:

  • Unpaid monthly rent.
  • Expenses incurred for storing or moving the tenant's belongings.
  • Outstanding utility payments per the rental contract.
  • Tenant-caused damage beyond normal wear and tear.

Prohibited deductions

New York security deposit laws do not allow landlords to deduct the cost of repairing any damages that were present during the inspection at the start of the lease term. Landlords also cannot deduct the cost of repairs caused by normal wear and tear, such as:

Returning the deposit

Under New York law, landlords have 14 days after the tenant vacates the property to either return the full security deposit or provide an itemized statement indicating any deductions made from the deposit.

If the landlord deducts any expenses from the security deposit, they must provide the tenant with an itemized list detailing each deduction and the corresponding cost. This list should include descriptions of the damages or unpaid rent, along with any supporting documentation or receipts for repair costs.

Landlords must provide this receipt within 14 days of when a tenant moves out, or they'll have to return the entire security deposit, whether there is damage or not.

What to do if your landlord doesn't return the deposit

If a landlord fails to give back the security deposit or provide an itemized statement after you move out of the property, you have several options:

Send a security deposit demand letter

Tenants can send a written demand letter to the landlord requesting the immediate return of the security deposit plus any accrued interest. Guidelines for sending your letter include:

  • Request for immediate return: Explicitly request the immediate return of the security deposit along with any accrued interest.
  • Certified mail: Use certified mail to send the letter and request a return receipt to confirm proof of delivery.
  • Legal requirements: Outline the landlord's specific legal obligations under New York law to return the security deposit within the stipulated time.
  • Consequences of non-compliance: Describe the potential legal consequences or penalties the landlord could face if they fail to comply with the demand to return the security deposit.

Seek mediation

If the landlord doesn't respond to the demand letter or refuses to return the deposit, the tenant may consider seeking mediation through a third-party organization. This could be a local housing court or tenant advocacy group.

Mediation provides a neutral platform for both parties to discuss the dispute and potentially reach an acceptable resolution without resorting to legal action.

File a complaint against your landlord

Tenants can file a complaint against their landlord with the New York State Attorney General's Office or the local housing authority. These organizations can investigate the landlord and take legal action on the tenant's behalf. 

Sue your landlord in small claims court

If all other efforts fail, you can file a small claims court case against the landlord to recover your deposit. This process includes:

  • Filing the claim: File a formal complaint at the small claims court in the jurisdiction where the rental property resides. This involves completing forms and paying a filing fee, which varies depending on the court.
  • Serving the landlord: After filing the claim, the court will issue a summons to the landlord, officially notifying them of the lawsuit.
  • Court appearance: Both the tenant and the landlord must appear in court on the scheduled date. Here, both parties will have the opportunity to present their evidence, such as the lease agreement, receipts, and any other documents that support their case.
  • Judgment: After hearing both sides, the judge will make a decision based on the evidence presented. If the tenant wins, the landlord may have to pay back the security deposit and any other damages the court awarded.
  • Collection: If the landlord does not voluntarily pay the amount ordered by the court, further steps may need to be taken to collect the judgment, which could include garnishing wages or seizing assets.

Additional security deposit regulations

In addition to the core security deposit laws, landlords and tenants should be aware of several related New York landlord-tenant regulations.


New York landlords must notify tenants in writing about their right to request a pre-move-out inspection. The tenant has the right to be present during this inspection, and the landlord must provide advance notice of the date and time.

After the inspection, the landlord must give the tenant an itemized list of any potential deductions from the security deposit. This allows the tenant the opportunity to address these issues to avoid deductions.

Interest bearing account

New York landlords must pay interest on security deposits each year. This regulation makes sure that the tenant's money is protected and earns a small return while held by the landlord. Landlords should follow these legal regulations:

  • Banking requirements: The security deposit must be in a New York state banking organization.
  • Tenant notification: Landlords must inform tenants of the bank's name and address where they hold the deposit.
  • Interest distribution: The landlord must pay the tenant annual interest earned on the security deposit minus a 1% fee for administrative costs.

Rent increases

Under New York State law, if the landlord raises the rent during a lease renewal, they can collect additional money from a tenant to bring the security deposit up to one month's rent of the new amount.

Sale of the rental property

The new owner is responsible for the tenant's security deposit if your building sells. The previous landlord must transfer all security deposits to the new owner within five days or return them to the tenants.

Landlords must notify tenants by registered or certified mail, providing the new owner's name and address. The new owner then becomes directly responsible for returning security deposits and any accrued interest.

Taxes on security deposits

There are certain requirements around taxes and security deposits. Here's what landlords should know:

Taxable revenue upon receipt

When a landlord in New York collects a security deposit, the Internal Revenue Service (IRS) does not immediately consider it taxable income. This is because the deposit may still be refundable to the tenant.

Taxable income upon lease termination

At the end of a lease, the IRS provides the following guidelines regarding taxes:

  • Deposit forfeiture: If a tenant violates the lease terms, leading to the forfeiture of the deposit or its use to cover unpaid rent, the retained amount is income in the year it was forfeited.
  • Deductions for repairs: If the landlord deducts repair costs from the deposit and treats those costs as expenses, the portion of the deposit retained is income. 
  • Using the deposit as the final rent payment: If both parties agree to use the deposit, or a portion of it, as the final rent payment, the landlord must report the amount as income.

New York security deposit law

Security deposits can easily lead to disputes between New York tenants and landlords if both parties don't follow proper protocols. You can avoid costly conflicts by following the relevant laws to the letter and fully understanding your rights and recourses.

For tenants, documenting every aspect of the property's condition from day one sets the right foundation. Landlords must also uphold their responsibilities by conducting walk-throughs and providing proper notice and disclosure.

Even when both parties act in good faith, disagreements can sometimes arise over deposits. In these cases, don't let the situation escalate needlessly. Leverage resources to mediate and resolve security deposit issues fairly, whether that's housing courts, tenant advocacy groups, or third-party mediation services.

Communication from both sides is valuable when handling these significant sums of money. Staying updated on regulations, keeping records, and making good faith efforts all create a better rental experience. Informed tenants and landlords help keep security deposit issues at bay.

Security deposit law New York FAQs

Can a landlord keep a security deposit for a breaking lease in New York?

Yes, a landlord can keep a security deposit for breaking a lease in New York if they're using the deposit to cover unpaid rent, damages beyond normal wear and tear, or other lease violations specified in the lease agreement.

Can I use my security deposit as last month's rent in NY?

You cannot use your security deposit as the last month's rent in New York without the landlord's agreement. The security deposit must be returned in full at the end of the tenancy unless the landlord holds deductions for damages beyond normal wear and tear, unpaid rent, or other breaches of the lease terms.

Can a landlord ask for a 2-month security deposit in NY?

No, New York landlords cannot ask for more than one month's rent as a security deposit. 

Important Note: This post is for informational and educational purposes only. It should not be taken as legal, accounting, or tax advice, nor should it be used as a substitute for such services. Always consult your own legal, accounting, or tax counsel before taking any action based on this information.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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