Security Deposits Under New York LawAlmost every lease requires tenants to give the landlord a security deposit. Most New York State landlords are required by law to place these deposits in interest-bearing accounts. However, there are exceptions.
All landlords in New York State, regardless of the number of units in their building, must treat security deposits as trust funds belonging to their tenants. They can't mix the deposits with their own money.
However, they are only required to place the deposit in an interest-bearing account if the building has six or more units. In those cases, the landlord is required to provide the tenant with the name and address of the bank and tell the tenant how much interest the security deposit earns each year.
The landlord should credit the tenant the full amount of annual interest, less a maximum of 1% of the security deposit per year for the administrative costs. For example, if a tenant makes a $400.00 security deposit and the deposit generates $10 in interest per year, then the landlord can keep only $4-1% of the $400 deposit.
If the building has fewer than six units, the landlord is not required to put security deposits in interest-bearing accounts. But if the landlord does so voluntarily, then he must follow the same rules as owners of properties with six or more units.