Security Deposit Compliance for NY Landlords: The Full Rules

Security deposit mistakes are one of the most common — and most expensive — compliance failures for New York landlords. The rules changed significantly under the 2019 Housing Stability and Tenant Protection Act (HSTPA), and getting them wrong can cost you the right to keep any of the deposit at all. This is educational information, not legal advice — consult counsel for your specific situation.

1. The one-month cap

Under General Obligations Law § 7-108, a residential security deposit cannot exceed one month's rent — full stop. This cap covers everything you collect as security, including any pet-related security money; you cannot charge a separate "pet deposit" on top of a full one-month deposit.

2. The 14-day return deadline

You must return the deposit — minus any lawful, itemized deductions — within 14 days of the tenant vacating, along with a written itemized statement of any deductions. Miss this deadline, or fail to provide an itemized statement, and you can forfeit your right to keep any of the deposit, regardless of whether the deductions themselves were otherwise valid.

3. What you can and can't deduct

Lawful deductions generally cover unpaid rent and damage beyond normal wear and tear — not routine wear from ordinary living. Keep receipts and, ideally, dated photos supporting any deduction; "the carpet needed cleaning" without documentation is a common losing argument in a deposit dispute.

4. The tenant's right to a walkthrough

New York gives tenants the right to request a walkthrough inspection before move-out, so they have a chance to fix issues themselves before you assess damage. Offer this proactively — it reduces disputes and gives you a documented, mutually observed baseline.

5. Interest requirements (larger buildings)

In buildings of six or more units, security deposits generally must be held in an interest-bearing account, with interest paid to the tenant annually or credited against rent, less a small administrative fee the landlord may retain. Smaller buildings aren't subject to the same interest requirement, but check current HCR guidance for your building size.

6. Deposits transfer with the building

If you sell or transfer the building, the security deposit obligation — and generally the deposit itself — transfers to the new owner. Document deposit balances clearly during any sale so tenants and the new owner aren't left disputing who owes what.

7. What tenants can recover if you get it wrong

A tenant whose deposit isn't returned properly can sue — often in Small Claims Court, without a lawyer — for the amount wrongfully withheld, and if a court finds the violation was willful, up to double that amount in statutory damages.

Stay compliant without the guesswork

Use our free, compliant templates: the itemized deposit return letter and the move-in/move-out condition checklist that documents your basis for any deduction from day one.

Official sources

• NYS Homes and Community Renewal (HCR)
• NYC HPD