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New York Security Deposit Law: What Landlords and Tenants Must Know

    Article 7 of New York State’s General Obligations Law (“GOL”) governs the treatment of security deposits in rental properties. For free-market rental units in New York, the most relevant sections are GOL § 7-103 and GOL § 7-108. These laws are designed to protect tenants and ensure proper handling of their deposits.

 

Overview: Key Rules for Security Deposits in New York

Category	Description of Obligation
Applicability	Applies to all rental properties except those under rent control, licensed care facilities, certain senior housing, seasonal units, and some owner-occupied co-ops. GOL § 7-108.1-a(a).
Security Deposit Limit	Landlords cannot collect more than one month’s rent as a deposit or advance, with limited exceptions (seasonal use units or owner-occupied co-ops). GOL § 7-108.1-a(a).
Refund Conditions	Entire deposit must be refunded upon move-out, except for lawful deductions (e.g., unpaid rent, utilities, damage beyond normal wear and tear, storage fees). GOL § 7-108.1-a(b).
Notice requirement regarding deposit with banks	If the deposit is placed in a bank, landlord must provide written notice of the bank name, address, and amount deposited. GOL § 7-103(2)
Interest-Bearing Account	Required if the property has 6 or more residential units. Deposit must earn interest at the prevailing rate. GOL § 7-103(2-a)
Pre-Move-In Inspection Option	Landlord must offer a pre-occupancy inspection. If done, both parties sign a written agreement noting existing conditions—listed items are not deductible. GOL § 7-108.1-a(c).
Pre-Move-Out Inspection Rights and Itemized List	Landlord must inform the tenant in writing of their right to a pre-move-out inspection. If requested, inspection must occur 1–2 weeks before move-out, with 48 hours' notice. Tenant may fix issues before vacating. After the inspection, the landlord shall provide the tenant with an itemized list specifying repairs or cleaning. GOL § 7-108.1-a(d).
Prohibition on Commingling	Landlords must segregate security deposits from personal funds in a trust account. GOL § 7-103 (1)
Post-Move-Out itemized list	Within 14 days of move-out, landlord must give tenant: (1) Itemized list of the deductions from the security deposit (2) Remaining deposit refund Failure to do so = landlord forfeits right to the security deposit. GOL § 7-108.1-a(e).
Burden of Proof	If a dispute arises, the landlord bears the burden of proving that retained amounts were reasonable and lawful. GOL § 7-108.1-a(f).
Penalties for Violation	Landlords may be liable for actual and punitive damages, up to 2x the deposit if willful. GOL § 7-108.1-a(g).
Transfer of Property Obligations	If property is sold/transferred: (1) the successor is liable for deposit if they had actual knowledge; (2) the successor must notify tenant within 30 days if no record of deposit exists; (3) the tenant must then provide proof to preserve rights. GOL § 7-108.2(a).
Escrow for Unknown Deposits	Buyer may demand seller to escrow 1 month’s rent per unit with unknown deposit status to cover potential liability. GOL § 7-108.2(d).
Waiver Prohibited	Tenants cannot waive their rights under this law—any waiver is void. GOL § 7-103.3.
Seasonal Units Exception	Excluded from deposit limits if the lease is under 120 days, the unit is registered, and the tenant has a primary residence. GOL § 7-108.4(a).
Owner-Occupied Co-op Exception	Deposit limits do not apply to co-op units if: • Tenant is purchaser/shareholder • Has proprietary lease • Unit is not under specific housing finance laws. GOL § 7-108.6.

 

What is “Commingling” and Why is It Prohibited?

    GOL § 7-103(1) requires landlords to treat security deposits as trust funds, not personal assets. Commingling occurs when a landlord mixes deposit funds with their own, violating the law.

 

    The purpose of the prohibition on commingling rule is to protect tenants from misappropriation of funds deposited as security with the landlord. In re Spinelli, 36 B.R. 819 (Bankr. E.D.N.Y. 1984).

 

    Pursuant to GOL § 7-103(1) a landlord is required to hold a security deposit in trust for its tenants because a tenants' security deposit continues to be the money of the tenants who made the deposit and may not be comingled by the landlord with the landlord's own money.

Are There Defenses Against a Commingling Claim?

    Under certain circumstances, courts recognize a “harmless error” exception where:

 

• The funds were promptly restored or segregated;
• The lease continued uninterrupted;
• No actual harm occurred to the tenant.

 

✨Best Practice: Landlords should document a full account history of the deposit and avoid even short-term co-mingling.

 

    "[W]here the lease continues, a prior commingling since corrected does not forfeit the security." Sommers v. Timely Toys, Inc., 209 F.2d 342 at 343 (2d Cir.1954) (citing 160 Realty Corp. v. 162 Realty Corp., 113 N.Y.S.2d 618, affd. 280 App.Div. 762, 113 N.Y.S.2d 678 [1st Dept.1952]).

 

    "[I]f a landlord restores and segregates the once commingled funds prior to bankruptcy or prior to an action having been commenced for the conversion, the statutory "trust" may be reinstated, and the tenant or trustee in bankruptcy will no longer possess a cause of action for the conversion." In re Spinelli, 36 B.R. 819 (Bankr. E.D.N.Y. 1984).

 

    In these cases, forfeiture is improper whereas the trustor's error does not threaten the deposit. However, such cases do not involve the typical landlord-tenant relationship.

 

    Courts in New York have emphasized that conversion (i.e., wrongful possession or use of another’s property) requires more than mere comingling. There must be actual damage or harm to the tenant's rights:

 

    “The essence of the tort of conversion is not the mere exercise of some dominion over the property of another but     such an exercise as actually causes some real detriment to the rights of the owner of the thing over which dominion is exercised.”

 

    — Tow v. Maidman, 56 Misc. 2d 468, 288 N.Y.S.2d 837 (Sup. Ct. 1968)

 

    That said, a landlord has the burden to show that the security deposit was properly maintained and never misused.

 

    Best practice? Keep the deposit in a segregated escrow account and maintain detailed records showing that the funds were untouched.

 

    "A landlord is best advised to give a complete historical account of the manner in which the funds were treated and the account was maintained if the landlord wishes to defeat a summary judgment motion claiming conversion of a security deposit." McMaster v. Pearse, 9 Misc. 3d 964, 804 N.Y.S.2d 640 (Civ. Ct. 2005).

 

    It is the landlord's burden to demonstrate that it did not comingle the tenant's security deposit. US. Legal Support, Inc. v. Eldad Prime. LLC, 125 A.D.3d 486, 488 (1St Dept. 2015).

 

    "Not every violation of a statutory provision abrogates or causes a forfeiture of contractual rights, and the general rule is that when the statute does not expressly provide that a violation of it will so operate and such operation is out of proportion to the requirements of public policy or appropriate individual punishment, the statute will not be construed as producing that result.” 160 Realty Corp. v. 162 Realty Corp., 113 N.Y.S.2d 618 (Sup. Ct.), aff'd, 280 A.D. 762, 113 N.Y.S.2d 678 (App. Div. 1952).

What is an itemized list?

    An itemized list is a detailed statement of deductions from the deposit, including repair or cleaning costs. This list must be:

 

• Based on actual expenses
• Supported by evidence, such receipts or invoices

 

    The landlord must give the tenant an itemized statement detailing any repairs or cleaning costs that would be the basis of deductions from the security deposit. Diaz v. Cunningham, 68 Misc. 3d 319, 123 N.Y.S.3d 807 (N.Y. City Ct. 2020). "The landlord cannot recover from a tenant the cost to repair those damages without 'competent evidence'" (id.). The itemized list needs to set forth the expenses the landlord incurred due to the tenant’s conduct.

What Happens If No Itemized List Is Provided?

    If a landlord fails to provide a post-move-out itemized list within 14 days, they lose the right to withhold any part of the deposit—even for valid damages.

 

    In 14 E. 4th St. Unit 509 LLC v. Toporek, 203 A.D.3d 17, 159 N.Y.S.3d 419, the Court found that the penalty of forfeiture is only mandated when the landlord fails to provide an itemized statement of the repairs that it claims are required and justify the retention of part or all of the security deposit. This interpretation of GOL § 7-108(1)(e) limits the availability of forfeiture to failure to provide an itemized statement, as opposed to failure to put the tenant on notice of its right to inspect, was shortly later adopted in other cases. Karole v. 340 W. End Ave., LLC, 74 Misc. 3d 1233(A), 165 N.Y.S.3d 688 (N.Y. Civ. Ct. 2022); Pickens v. Lane, 78 Misc. 3d 1229(A), 186 N.Y.S.3d 923 (N.Y. Civ. Ct. 2023).

 

    "Although sections (d) and (e) collectively provide a blueprint that a landlord must follow before a tenant's security deposit can be applied to claimed repairs, by the plain terms of the statute only the obligations in subdivision (e) are subject to a penalty of forfeiture if they are not complied with" (14 E. 4th St. Unit 509 LLC v. Toporek, 203 A.D.3d 17, 159 N.Y.S.3d 419, leave to appeal dismissed, 38 N.Y.3d 1019, 188 N.E.3d 1004 (2022)).

 

    Therefore, it appears that providing the Post-Move-Out itemized list in compliance with GOL § 7-108(1)(e) bars forfeiture of the security deposit, despite the failure to deliver a pre-move-out itemized list.

Why Must the Itemized List Be Provided Before Move-Out?

 

    The law gives tenants a chance to fix issues before they leave, and then receive a final accounting. The legislature enacted the legislation so that tenants know, prior to the end of a tenancy, whether the landlord maintains that the rented property was damaged, whether the cost of those damages would be deducted from the security deposit, and for the landlord to give the tenant an opportunity to fix or repair the alleged damages. Edwards v. Van Valkenburg, 74 Misc.3d 1062, 1066 (Just. Ct. Albany Co. 2022) and in Diaz v. Cunningham, 68 Misc. 3d 319. 123 N.Y.S.3d 807 (Civ. Ct. Orange Co. 2020).

 

    The legislature intended by the statute that a landlord shall provide up to two (2) itemized statements to the tenant who opts to repair or cure the alleged damages.

 

1. The first itemized statement is delivered before the end of the tenancy and identifies the repairs and cleaning that is needed to cure the damages.
2. The second itemized statement is to be delivered by the landlord to the tenant within I4 days after the tenant vacated the premises, and must describe in specific terms the basis for retaining some, or all, of the security deposit. 

Do I Have to Put Security Deposits in an Interest-Bearing Account?

    Only if the property has 6+ dwelling units. Then:

 

• Deposit must be in a New York banking institution
• Landlord is entitled to 1% admin fee
• Tenant must receive written notice of the account details

 

    GOL § 7-103(2) provides that “If the person depositing such security money in a banking organization shall deposit same in an interest bearing account, he shall be entitled to receive, as administration expenses, a sum equivalent to one per cent per annum upon the security money so deposited, which shall be in lieu of all other administrative and custodial expenses.”

What Are the Penalties for Violating Security Deposit Laws?

    Under GOL § 7-108.1-a(g):

 

• Landlords are liable for actual damages.
• If the violation was willful, the court may award up to 2x the deposit.

 

    “The word “willful” is widely used in the law, and, although it has not by any means been given a perfectly consistent interpretation, it is generally understood to refer to conduct that is not merely negligent." (McLaughlin v Richland Shoe Co., 486 US 128, 133 [1988]).

 

    "[I]t requires more than inadvertence[,] and we have noted in other contexts that it requires actions performed 'knowingly, intentionally or deliberately.'" Matter of Cervini Car Wash, Inc. v Adduci, 167 AD2d 751, 752 [3d Dept 1990]. Willful conduct requires more than inadvertence - it requires actions performed knowingly, intentionally or deliberately”. Matter of Cervini Car Wash, Inc. v Adduci, 167 AD2d 751, 752 (3d Dept 1990).