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

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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