Comments Off on Recommended Security Deposit Procedures

Courts are getting testy about Security Deposits.They want them to be ‘fair’ and protected from Landlords who would use them beyond the scope of their intended purpose.The changes are not difficult to live with but they may become expensive to ignore.

Many Landlords already abide by the new rules which pop up state by state but are all similar.Here is an example of what is happening.

On December 29, 2015, in the case of 23 E. 39th St. Mgt. Corp. v. 23 E. 39th St. Dev., LLC, 2015 NY Slip Op 9605, the N.Y. Appellate Division held that when a landlord fails to properly maintain security deposits, the landlord is NOT permitted to use the security as an offset to unpaid past due rent.This is generally only a problem while the Tenant remains in the building.After the Tenant leaves or is evicted there are usually plenty of non- rent related charges to cover the Security Deposit.

Among other things, the law provides the following:

  • Security Deposits are a Trust account and not available to the Landlord on an as needed basis.The funds cannot be used a rent payment is late.
  • The Trust account must be set up as an independent account, totally unrelated to any other account.
  • The Landlord is responsible for notifying the Tenant of the name, address and amount of the deposit.This should be done with a certified letter and the receipt should be saved.
  • The Landlord must deposit the funds in an interest bearing account.Generally these accounts provide extremely low interest rates.This interest must be paid to the Tenant EACH Year or applied to rent.This is a gigantic and unnecessary accommodation but it is increasingly becoming the law.As a Landlord, you are entitled to an Administrative of one percent which is usually about all of the interest anyway.It is extra work that has no benefit for anybody.
  • When the Lease is terminated the Landlord is responsible for paying any interest in the account to the Tenant.Once again, more paperwork with no real benefit to anybody.

These laws are to ‘Protect’ the Tenant from Landlords who would steal all that interest.In reality, the interest is so low and the costs of disbursement of the interest is so high it will cost the Landlord much more than any possible benefit to the Tenant.This extra cost must be absorbed into the overall cost of running the Apartment and will ultimately wind up raising rent fees, even if only slightly.

Judges are not Accountants or Businessmen.They want to be ‘fair’, which is a cloudy concept at best.They generally care about doing the right thing, but the cost is not a primary concern.These laws are creating a lose-lose situation for both Tenants and Landlords.


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