What landlords and tenants need to know about NYC security deposit laws

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By Massimo F. D’Angelo, Esq.

  1. HSTPA

On June 14, 2019, the New York State Legislature enacted the Housing Stability and Tenant Protection Act of 2019 (HSTPA), the purpose of which was to extensively strengthen tenants’ statutory rights in combating their financially superior landlords. One of the major changes to the rent laws under the HSTPA involved an overhaul of the security deposit laws.

MASSIMO D’ANGELO

The HSTPA is broken down into fifteen separate
parts (Parts A through O), each of which pertain to different areas of
rent regulation and tenant protection. Notably, the effective date for each
specific provision contained within a particular Part is set forth in the last
section of that Part.

  1. HSTPA’s
    Overhaul of the Security Deposit Laws

Part
M of the HSTPA amended General Obligations Law (“GOL”) § 7-108, the laws pertaining
to security deposits. In particular, the new security deposit laws – which
prohibit landlords from collecting more than one month of security or from
taking any payment of future months’ rent – cover both rent-regulated (rent
stabilized and rent controlled) and free market tenancies.

However,
the new security deposit laws do not apply to: licensed retirement communities,
assisted living providers, adult care facilities, senior residential
communities, and not-for-profit independent retirement communities that offer
personal emergency response, housekeeping, transportation, and meals to their
residents. See GOL § 7-108,
subdivision 1-a.

Pursuant
to the HSTPA (Part M), the new security deposit laws became effective on July
30, 2019, and apply to any lease, rental agreement or renewal of a lease or
rental agreement entered into on or after such date. In order to add teeth to
the new security deposit laws, the Legislature specifically included a
provision to allow courts to issue punitive damages against those landlords who
violate the new security deposit laws for up to twice the actual deposit
amount. See GOL § 7-108 (g). Therefore,
landlords who charge more than one month’s rent for security at lease execution
are taking a substantial risk and exposure to punitive damages of up to two
times the amount of the underlying deposit.

  • Timeline
    and Procedure for Return of Security

In
addition, the new security deposit laws require landlords to return the
security deposit within fourteen (14) days after the tenant vacates the
apartment except for reasonable and itemized costs resulting from the
nonpayment of rent, damage caused by tenant beyond normal wear and tear,
nonpayment of utility charges, and moving and storage of tenant’s personal
property. See GOL §§ 7-108 (a) and
(e). There is an open question as to whether the costs relating to the
nonpayment of rent are recoverable, which will likely be developed by
subsequent case law.

  • Apartment
    Inspection Parameters

Pursuant
to GOL § 7-108 (c), after the initial lease is signed, but before the tenant
begins occupancy, the landlord must offer the tenant an opportunity to inspect
the apartment with the landlord or the landlord’s agent for purposes of
determining the condition of the apartment. If the tenant requests such an
inspection, the parties must execute a written agreement before the tenant
begins occupancy of the unit attesting to the condition of the property and
specifically noting any existing defects or damages (the “Precondition
Agreement”).

Critically,
upon the tenant’s vacating of the apartment, the landlord may not retain any
amount of the deposit or advance due to any condition, defect, or damage noted
in the parties’ Precondition Agreement, which is admissible as evidence in any
subsequent legal proceeding related to the return or amount of the security
deposit. Further, within a reasonable time after notification of either party’s
intention to terminate the tenancy, unless the tenant terminates the tenancy
with less than two (2) weeks’ notice, the landlord must notify the tenant in
writing of the tenant’s right to request an inspection before vacating the apartment
and of the tenant’s right to be present at the inspection. See GOL § 7-108 (d).

Should
the tenant request such an inspection, the inspection is to be made no earlier
than two (2) weeks and no later than one (1) week before the end of the tenancy.
The landlord is required to provide at least forty-eight (48) hours written
notice of the date and time of the inspection. Following the inspection, the
landlord must provide the tenant with an itemized statement specifying the
repairs or cleaning that are proposed to be the basis of any deductions from
the tenant’s deposit. Notwithstanding, the tenant has the opportunity to cure
any such condition before the end of the tenancy.

In
the event that the landlord fails to provide the tenant with the statement and
deposit within fourteen (14) days, the landlord shall forfeit any right to
retain any portion of the deposit. See
GOL § 7-108 (e). In any action or proceeding disputing the amount of any amount
of the deposit retained, the landlord shall bear the burden of proof as to the
reasonableness of the amount retained.

  • New
    Notification Mandates

Although the HSTPA does not specify how the
itemized statement should be provided to the tenant, it is recommended that the
lease explicitly explain this procedure. While the HSTPA provides that written
notice is sufficient, it would be prudent for the lease to specifically provide
what methods of notice are being utilized (i.e., e-mail, facsimile, or
overnight delivery (e.g., Express Mail, UPS or FedEx) for the delivery of the
itemized statement.

Furthermore and particularly given the service
issues raised by the COVID-19 pandemic, it is strongly recommended that the
lease specifically allows for e-mail notice for both Landlord and Tenant. It is
extremely important, especially for the landlord, to vigilantly follow these
security deposit notice dictates because, as alluded to above, if the landlord
fails to deliver the statement to the tenant in a timely manner, the landlord
can be assessed with punitive damages equal to twice the amount of the security
deposit, and additionally, the landlord may forfeit the right to retain any
portion of the security deposit in any eviction proceeding against the tenant.

CONCLUSION

Given that New York Landlords are now statutorily only permitted to collect one month’s worth of rent upon lease signing, the need to protect that collateral in order to offset any damages to the apartment upon lease termination – excepting normal wear and tear – is of critical import.

First, immediately following signing of the lease, but before tenant takes possession of the apartment, the Landlord must offer the tenant with an opportunity to inspect the unit in accordance with the statute. Landlords should make this offer in writing so that they can show that they complied with the statute.

Should the tenant request an inspection, the statute further requires the parties to execute the Precondition Agreement confirming the condition of the unit and noting any defects within the unit. In the event that the parties are unable to agree on the unit’s condition, then each party should independently document the overall condition of the unit, along with any defects with date and time stamped photographs in case there is a future fight about the damages caused by the tenant.

To ensure the protection of that security, landlords must generate the mandated statutory notices to tenants and fastidiously adhere to the HSTPA’s rules and procedures regarding security deposits, lest they be left in the lurch.

It is equally important for tenants to be armed with the knowledge and understanding of the HSTPA’s new security deposit laws in order to best protect against false future damage claims raised by their landlord.

Massimo F. D’Angelo is a partner at Akerman LLP

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