When can a landlord withold atenants security deposit ?

 

Most tenants are familiar and accepting of the concept that a security deposit (usually the equivalent of one-month’s rent) is due to a landlord at the commencement of a tenancy in order to safeguard the landlord against certain incidental damages that may occur during the life of the tenancy. The general idea is that once a tenancy ends and a tenant timely vacates, the security deposit will be returned to the tenant in full. The Courts have found that a landlord holding a security deposit under a lease covering the rental of real property does so in the capacity of a trustee. As such, the deposit remains the property of the tenant. See Glass v. Janbach Properties, Inc., 73 A.D.2d 106 (2nd Dept. 1980). (Once a landlord receives the security deposit, he may not comingle a tenant’s security deposit with his own money under any circumstances. The landlord owes a duty not to commingle the deposit with his own funds, and upon breach of that duty, he forfeits his right to avail himself of the deposit for any purpose. See Matter of Perfection Technical Services Press, 22 AD2d 352 [2nd Dept. 1965]. Commingling of security deposit funds with a landlord’s personal funds is a conversion and the tenant has an immediate right to recover the deposited funds. See LeRoy v. Sayers, 217 AD2d 63 [1st Dept. 1995], citing Sommers v. Timely Toys, 209 F2d 342 [Court of Appeals, 1954]; 74 NY Jur 2d Landlord and Tenant, Sec. 604.)

Following the tenancy, all or part of a security deposit can be rightfully withheld by the landlord in some circumstances to cover certain damages, whether intentional or accidental, that occur during the tenancy. Such damages may include structural damage caused by the tenant that needs to be repaired; damage to furniture or carpets belonging to the landlord that needs to be cleaned or repaired; property violations incurred by the tenant that needs to be paid due to illegal tenant activity; or even nonpayment of utilities which result in a lien on the property. These are all examples legitimate reasons a landlord may withhold all or part of a security deposit. “A landlord requires such a deposit, although still the property of the tenant, to attain the status of a protected creditor should the tenant breach the lease.” Glass v. Janbach Properties, Inc. (supra). Unfortunately, there are other times where greedy, unscrupulous landlords simply try to keep money that does not rightfully belong to them by falsifying damages or not returning messages from the tenants.

This often leaves tenants with feelings of helplessness and with lingering questions, such as: “What are my rights?” “Is this legal?” “How can I confirm these charges?” and “What recourse do I have?” There can also be a lot of vagueness about what is considered “reasonable” and who makes the decision about what is reasonable.

Any and all questions should, first and foremost, be directed to the body of the Lease Agreement. A Lease Agreement will often define terms such as “reasonable” and specify the rights, duties and obligations of the parties. However, if there is no Lease Agreement, or if the Lease Agreement does not address the issue or addresses the issue vaguely (as it often does), New York State has laws in place to help answer these questions.

On June 14, 2019, former New York State Governor Andrew Cuomo signed the Housing Stability and Tenant Protection Act. Among other provisions, the new law holds that for a landlord to retain any portion of a security deposit, the landlord must, after the vacatur inspection, give the tenant an itemized statement specifying any repairs or cleaning needed to give the tenant an opportunity to cure the conditions. This means that the tenant has a right to cure the problem at their own expense before the landlord can hire anyone at egregious rates or jack up the price of simply repairs.

Here is the important change: under the former law, landlords had to return a security deposit within a “reasonable time.” This term is as vague as it sounds and, depending on the circumstances, a reasonable time could be a week, a month, or even longer. However, under New York’s Housing Stability and Tenant Protection Act of 2019, the law now provides that if any portion of the security deposit is retained, the landlord must provide (i) an itemized statement of the claimed conditions within 14 days after the tenant vacates and (ii) any remaining portion of the deposit. That’s two weeks that a landlord has to notify the tenant of any damages and specify how much is being withheld to cure the condition. A landlord that fails to comply forfeits any claim to the deposit. See New York State Bar Association- “NY’s Housing Stability Protection Act of 2019 Part III- What Lawyers Must Know. https://nysba.org/nys-housing-stability-and-tenant-protection-act-of-2019-part-iii-what-lawyers-must-know/.

So that means that once a tenant vacates and the landlord completes the inspection, the landlord must notify the tenant of any damages and give the tenant an opportunity to cure those damages at the tenant’s own expense. If not completed within two weeks, the landlord must provide an itemized statement of the damage, advise how much is being withheld to cure the damage and how much is remaining that will be returned to the tenant. Note- the returning of the deposit does not need to occur within two weeks, only the statement need be provided.

The new law also narrows what may be withheld from the deposit to include “reasonable” costs due to nonpayment of rent or utility charges, damage beyond ordinary wear and tear, and moving and storage of the tenant’s belongings. Landlords have the burden of proof to justify their retention of a security deposit and New York’s General Obligations Law now provides for punitive damages of up to twice the amount of the deposit for any willful violation of its provisions.

It is important that the burden of proof is on the landlord to justify the retention of the security deposit and that ordinary wear and tear is not a valid reason to withhold security. In Cherry v. Richards, the Supreme Court, Appellate Term, noted that part M, Section 25, of the Housing Stability and Tenant Protection Act of 2019 (L 2019, Ch 36) codifies the common law rule that a landlord may not retain a security deposit for damage caused by “ordinary wear and tear” (the Court also noted that the statute applies only to actions and proceedings commenced on or after June 14, 2019) (see L 2019, Ch 36, part M, Section 29). “Here, we need not determine whether [tenants] had damaged the house beyond what is attributable to ordinary wear and tear, as, in any event, [landlord] failed to provide the court with proof of her damages.” Cherry v. Richards, 64 Misc. 3d 148(A) (2019). See also Mazzarelli v. Moniaci, 21 Misc. 3d 129(A) (2008), “a security deposit remains the property of the tenant…and must be returned at the conclusion of the tenancy absent proof that the tenant caused damage beyond that attributable to ordinary wear and tear” (citing Finnerty v. Freeman, 176 Misc. 2d 220 [2nd Dept. 1998] “[Landlord] failed to establish that the alleged damage to the premises was caused by [tenant]. In any event, she failed to provide any evidence establishing the extent of the costs incurred to repair the alleged damage, and she was not entitled to the cost of a new stove. Finnerty v. Freeman [supra]”).

New York’s General Obligations Law is in conformity with the Housing Stability and Tenant Protection Act of 2019 and holds that the landlord is required to provide the tenant within fourteen (14) days after he/she vacated the property, “an itemized statement indicating the basis for the amount of the deposit retained, if any, and shall return any remaining portion of the deposit to the tenant.” See General Obligations Law 7-108(1-a)(e). A landlord cannot keep any amount of the security deposit for costs relating to ordinary wear and tear of occupancy or damage caused by a prior tenant.

However, a landlord can retain part or all of the security deposit for costs due to “non-payment of rent, damage caused by the tenant beyond normal wear and tear, non-payment of utility charges payable directly to the landlord under the terms of the lease or tenancy, and moving and storage of the tenant’s belongings.” See General Obligations Law 7-108(1-a)(b). If the landlord does not provide the tenant with the itemized statement and security deposit within fourteen (14) days, then the landlord forfeits any right to retain any portion of the security deposit. See General Obligations Law 7-108(1-a)(e). The obligations in subdivision (e) are subject to a penalty of forfeiture if they are not complied with. See Colon v. Martin, 35 N.Y.3d 75, 125 N.Y.S.3d 346 (2020); Matter of Walsh v. New York State Comptroller, 34 N.Y.3d 520, 122 N.Y.S.3d 209 (2019).

If the tenant disputes the amount of the security deposit being kept by the landlord and commences an action in court, the burden falls on the landlord to prove the reasonableness of the amount retained. See General Obligations Law 7-108(1-a)(f). If it is found that the landlord “willfully violated” General Obligations Law 7-108, then the landlord could be found liable for punitive damages of up to twice the amount of the security deposit. See General Obligations Law 7-108(1-a)(g).

This last provision is key. If a landlord is found to have “willfully violated” the law, then the landlord could be found liable for punitive damages of up to twice the amount of the security deposit. Here we are presented with vague terms again- what is considered a “willful violation?” That is a question for the Courts that will be determined on a factual, case-by-case basis.

One recent Court decision to which landlords should pay close attention is Swenson v. Westminster Management LLC, 67 Misc.3d 1204[A] (2020), where the landlord prevailed on charging tenants for the remaining month in the lease even though the tenants had moved out. The landlord returned most of the security deposit but retained $250 specified in the lease as a “move out fee” along with an additional $125 since the landlord’s workers had to remove furniture left behind by the tenant. Although these fees appeared modest and justifiable, the debits had not been itemized by the landlord in writing when the security deposit was returned, in violation of General Obligations Law 7-108. Thus, a full refund to the tenant was ordered by the Court. (Additionally, although the tenants submitted a move-out inspection form, there was never a move-out inspection that took place pursuant to the statute. Instead, the landlord did the “inspection” on his own after he became aware that the tenants had vacated.) The Landlord was also not entitled to a “move out fee” since this statutory provision overrode any contrary lease provision regarding a “move out fee.” However, since the tenant’s abandonment of the furniture was undisputed, the Court declined to impose any punitive damages although they would have been permissible under Section 7-108. The Court did, however, impose an additional $500 against the Landlord for the unlawful charges under the Lease Agreement.

A final note to potential litigants: if a tenant is forced to commence an action in Court, the amount of the security deposit that the tenant is seeking be returned, in addition to the amount of punitive damages the tenant is seeking from the landlord (if applicable) will determine into which Court the tenant must file the case. Depending on the amount sought, a case may be brought in Small Claims Court, Civil Court, or Supreme Court. Potential litigants should be sure to check the jurisdictional limits of their local Courts before commencing an action.