NYC Security Deposit Law: A Landlord's Guide to the 14-Day Rule, Interest, and Penalties (2026)

One day.

On February 24, 2026, the Appellate Term in Manhattan decided Campbell v Bharak, a case that shows how NYC security deposit law works in practice. The landlord was holding a $2,100 security deposit. The landlord's photographs of the cabinetry showed damage the court itself described as "beyond normal wear and tear," and the landlord sent the tenant an itemized letter explaining what was being kept and why.

The letter went out one day after the 14-day deadline. The tenant got all $2,100 back.

The court did side with the landlord on one point. The trial judge had effectively doubled the award, and the Appellate Term cut it back, because a letter one day late, backed by photographs of real damage, is not a willful violation. Between those two rulings sits most of what an owner needs to understand. The law does not reward being right about the damage. It rewards being on time, in writing, with the records to prove it.

In short: a New York landlord may collect no more than one month's rent as a security deposit, must hold it in trust without mixing it with other money, and must return it, with a written itemized statement of any deductions, within 14 days after the tenant moves out. Miss the 14 days and the landlord loses the right to keep any of it.

Below: the rules as of October 2026, the November 2025 change for rent-stabilized apartments, how the money must be held, the 14-day clock, what mistakes cost, sales, and commercial deposits.

NYC Security Deposit Law at a Glance

The core statute is General Obligations Law 7-108, which the Housing Stability and Tenant Protection Act of 2019 rewrote and extended to buildings of every size. Section 7-103 governs how the money is held. Our guide to NYC landlord-tenant law covers the wider framework; this is the deposit layer in detail.

A few situations sit outside these rules. Rent-controlled apartments are excluded from section 7-108's 2019 protections, as are licensed senior-care and assisted-living settings. The one-month cap alone does not apply to registered seasonal rentals, or to a co-op corporation taking a deposit from its own shareholder. That co-op exception does not cover a shareholder who sublets. And since 2019 there is no small-building or owner-occupied exemption: a single condo unit and a forty-unit walk-up face the same cap, inspections, and 14-day deadline.

Two neighboring rules are easy to confuse with these. The FARE Act, Local Law 119 of 2024, changed who pays the broker but did not touch deposits (our FARE Act guide). And Real Property Law §238-a bars any other upfront charge beyond a background-check fee capped at $20 (our rental application guide).

What Changed for Rent-Stabilized Apartments on November 15, 2025

For six years after the 2019 overhaul, rent-stabilized tenants sat outside it. Section 7-108 applies "unless such dwelling unit is specifically referred to in section 7-107," and section 7-107 is the rent-stabilized provision. Stabilized tenants had the Rent Stabilization Code's one-month cap, but not the 14-day itemized statement, the inspection rights, or the forfeiture penalty that market-rate tenants had.

Chapter 436 of the Laws of 2025 closed that gap. Signed on October 16, 2025 and effective November 15, 2025, it rewrote section 7-107 to mirror section 7-108 almost word for word: the cap, both inspections, the 14-day statement, the landlord's burden of proof, forfeiture, and punitive damages for willful violations.

The trigger matters most. The new rules apply to "any lease or rental agreement or renewal" entered into on or after November 15, 2025. They follow the lease, not the building.

The result is that a pre-war building with a stabilized mix, the kind of stock found across the Upper West Side, the Upper East Side, and Chelsea, can run two deposit regimes at once until every stabilized tenant has renewed. On a two-year renewal signed just before the effective date, that tail runs into late 2027. Rent-controlled apartments sit outside both regimes; rent stabilization and rent control are separate systems with separate rules.

DHCR's Fact Sheet #9, updated in November 2025, adds two operating points: deposits above one month's rent must be refunded, and an owner may top a deposit up to one month's rent when the rent increases. The top-up is agency guidance rather than Code text, so keep a record of its basis.

Chapter 436 also changed what a buyer of a stabilized building inherits. The old section 7-107 made the buyer liable for tenant deposits "whether or not" the seller ever handed them over. That language is gone. Buyers are now held to the actual-knowledge standard that already applied to market-rate apartments, covered in the sale section below. Whether the old rule still governs stabilized leases signed before November 15, 2025 is unsettled, which makes lease dates a due-diligence item on any stabilized acquisition.

Knowing which rules govern which apartment comes down to tracking every unit's lease and renewal dates: a records problem before it is a legal one, and the kind a property manager's systems exist to solve.

Holding the Deposit: Trust, Bank Notice, and Interest

A security deposit never becomes the landlord's money. Section 7-103 says it "shall continue to be the money of the person making such deposit," held in trust and not mingled with the landlord's own funds. That applies to every lease, residential or commercial.

If the deposit is banked, it must be at a bank with a place of business in New York, and the tenant must receive written notice of the bank's name and address and the amount deposited. Courts treat that notice as evidence. A missing notice supports an inference that the money was commingled, and naming the bank in the lease does not count as giving notice (McMaster v Pearse, Civil Court, New York County, 2005, a $21,000 deposit). Commingling is treated as conversion and a breach of fiduciary duty. The remedy is immediate return of the entire deposit, with no setoff for unpaid rent or damage, even if the tenant is in default.

On the apartments we lease for owners, we collect the deposit at lease signing. For the buildings we manage, deposits then sit in a separate escrow account that the owner controls and we can access. Tenant money never passes through Meraki's own accounts.

Security deposit interest in NYC is owed only in buildings with six or more apartments, where the deposit must sit in an interest-bearing New York bank account at the prevailing rate. The interest belongs to the tenant, and the landlord may keep 1% of the deposit per year as an administrative fee, which at low savings rates can absorb all of the interest.

The statute is specific that the fee is 1% "upon the security money so deposited," meaning 1% of the deposit, not of the interest, and that it is "in lieu of all other administrative and custodial expenses."

To illustrate: at the FDIC's national average savings rate of 0.37% (September 2026), a $4,995 deposit earns about $18 a year, less than the $49.95 allowance, so the tenant would be owed nothing. At 3%, it earns about $150 and the tenant is owed about $100. What governs is the rate on the actual account.

Rent-stabilized tenants choose how the interest is paid: annually, as a credit against rent, or at the end of the lease (Rent Stabilization Code §2525.4). For other tenants the statute allows it to be held until the deposit is repaid or paid annually, without saying who chooses. The lease should.

The bank escrow programs we reviewed keep a sub-account per tenant, require the tenant's taxpayer identification number, and issue the tenant's 1099. A caution for owners who live outside New York: at least one online landlord-banking platform says its accounts cannot hold deposits in states, New York among them, that require escrow or in-state accounts.

Move-In and Move-Out Inspections

The 2019 law added two inspections, and both are the landlord's job to offer.

Move-in. After the lease is signed and before the tenant moves in, the landlord must offer the tenant an inspection. If the tenant takes it, both sides sign a written agreement describing the apartment's condition, including any existing damage. The landlord may never charge a tenant for damage caused by a prior tenant, and this is the document that proves which damage came first.

Move-out. Within a reasonable time after either side gives notice that the tenancy is ending, the landlord must tell the tenant in writing that they may request an inspection before moving out. (This does not apply if the tenant gives less than two weeks' notice.) If requested, the inspection takes place no earlier than two weeks and no later than one week before the tenancy ends, on 48 hours' written notice. The landlord then gives an itemized statement of the deductions it proposes, and the tenant may fix those conditions before leaving.

Skipping the move-out notice does not forfeit the deposit. In 14 E. 4th St. Unit 509 LLC v Toporek (2022), a NoHo condo landlord never sent it, and the Appellate Division in Manhattan held that "only the obligations in paragraph (e)," the 14-day statement, carry the penalty of forfeiture. It left open what other consequences a skipped notice might carry. The landlord's claim against the $17,000 deposit went forward.

Why that landlord's claim survived is the more useful lesson. Its lawyer sent the itemized statement nine days after the tenant left the keys, listing each item, its estimated cost, and a color photograph. Dated photographs at move-in and move-out, the signed condition agreement, and line-item costs are what hold up later. Producing them at every turnover, in every apartment, on a deadline, runs on a checklist, not a good memory.

The 14-Day Clock: Security Deposit Return and the Itemized Statement

How long does a NYC landlord have to return a security deposit? New York security deposit law allows 14 days from the day the tenant vacates. Within that window the landlord must provide a written, itemized statement of anything being kept and why, and return the rest. If the statement is late, the landlord loses the right to keep any of the deposit.

The clock runs from vacatur, not the lease end date. The decisions we reviewed all count from the move-out. In Cohen v Abruzzo (Appellate Division, Second Department, 2024), a summer tenant left early by agreement, and the 14 days ran from the actual move-out rather than the lease's end. Your lease can define what "moved out" means. In Urban v Zipper (Appellate Division, First Department, 2025), the lease said a tenant had not moved out until all of their property was out, and the landlord's side said a hot tub was still on the roof deck. The vacatur date went to trial. Document the surrender date; it gets litigated.

It must be written, and it must reach the tenant. A letter, email, or text message qualifies; a phone call does not (Bogom-Shanon v Altman, Civil Court, New York County, 2025). Delivery matters too. In Pickens v Lane (Civil Court, New York County, 2023), a Harlem owner mailed the statement on day 13 to the apartment the tenants had just vacated, while holding their email address. The tenant received it by email on day 32. The court held the owner had not "provided" the statement, and the deposit was forfeited.

Only four things can be deducted: unpaid rent, damage caused by the tenant beyond normal wear and tear, utility charges the lease makes payable directly to the landlord, and the cost of moving and storing belongings the tenant left behind. Never ordinary wear and tear, and never damage caused by a prior tenant.

The burden of proof is yours. The landlord must prove what was kept was reasonable. In small claims, a paid invoice or two itemized estimates counts as evidence of reasonable repair cost (Civil Court Act §1804), and landlords without them have lost. In Quijano v Rowinski (Appellate Term, 2019), a Queens landlord's claim against a $1,737 deposit failed twice over: the damage was ordinary wear and tear after an eight-year tenancy, and there were no paid receipts or estimates. In Hernandez v Ndiaye (Appellate Term, First Department, 2017), a Bronx landlord's damage claim was dismissed where the conditions traced to leaks and nine open HPD violations.

Paint deductions deserve particular care. HPD's own guidance is that owners must paint occupied apartments in buildings with three or more units every three years (NYC Administrative Code §27-2013). Charging a long-term tenant's deposit for what is effectively the owner's scheduled repaint is hard to defend.

The 14-day statement is a deliverable on a deadline after every single move-out. It needs a system behind it, not a reminder.

What a Late or Wrong Statement Costs

Forfeiture is strict. Miss day 14 and the landlord loses the right to keep any of the deposit, even when the damage is real and photographed. That includes unpaid rent: "Only the itemized statement itself triggers landlord's ability to keep the security deposit under the statute; the nonpayment of rent does not" (Bold Group v Rachmut, Supreme Court, New York County, 2026).

Willfulness adds up to twice the deposit. Where the willfulness line falls has turned on the facts. Courts have awarded punitive damages for no statement at all paired with a pretextual excuse, and for a standard "move-out fee" deducted from every tenant. They have denied them for a one-day miss with real damage, for a landlord who was unaware the law had changed, and for an owner who mistakenly believed the money could be kept. Ignorance is not a dependable defense, though. One Manhattan judge found an attorney-landlord who explained the deductions only by phone to have acted willfully, called twice the deposit a ceiling rather than a fixed amount, and awarded half.

Interest runs on top. Courts have added 9% prejudgment interest running from the missed deadline.

Put that in Manhattan terms. StreetEasy's median asking rent for Manhattan in August 2026 was $4,995. Forfeit a deposit that size and a tenant can also seek up to $9,990 in punitive damages if the court finds the violation willful: $14,985 of exposure on one apartment, by our arithmetic. That is more than the $10,000 limit on small claims (Civil Court Act §1801), so a tenant chasing the full amount files in Civil Court proper.

The Attorney General enforces the same rules at scale. In 2022, SGW Properties, manager of 18 Brooklyn buildings held in separate owner LLCs, agreed to return about $296,000 to 129 tenants after giving inspection notices and deduction explanations only verbally; the manager and every owner entity signed. Settlements with landlords outside the city followed in 2023 ($422,598.21 to 899 tenants) and 2024 ($123,927 to 150 tenants), each with a penalty.

Whose problem is a managing agent's mistake? Yours. In Karole, the management company "knew or should have known" the law, the court imputed that knowledge to the owner, and the judgment ran against the owner. In Kaysen v Ultimate Group Management (Supreme Court, New York County, 2023), the court dismissed the claims against the managing agent outright: the statute "does not impose any obligations on a managing agent of the landlord." One court has entered judgment against a manager and owner together without discussing the point, so a manager's personal exposure is not settled. The owner's is.

Which is why the process your manager runs matters more than their intentions.

When the Building Sells

In a sale, the money and the obligation can travel separately.

The seller's duty. Under section 7-105, the seller must turn the deposits over to the buyer at delivery of the deed or within five days, and notify each tenant by registered or certified mail of the buyer's name and address. A seller who does that is released; one who does not stays liable and commits a misdemeanor. In Gerel Corp. v Prime Eastside Holdings (Appellate Division, First Department, 2004), the incoming landlords of three Manhattan buildings recovered $477,984.72 in tenant deposits that the outgoing landlord had kept to offset what it claimed it was owed.

The buyer's exposure. If the deposits are not turned over, the buyer is still liable to the tenants for any deposit it has actual knowledge of, and the statute decides what counts as knowledge: a deposit held in a New York bank under the six-apartment rule at any time in the six months before closing, a deposit acknowledged in a lease in effect at closing, or a deposit the tenant can document. Within 30 days of closing, the buyer must notify any tenant for whom it has no deposit record, and it may demand that the seller fund an escrow of one month's rent for each such apartment. For stabilized leases under the rewritten section 7-107, the same standard now applies.

A credit at closing is not a transfer into trust. A 2025 settlement with the Attorney General and New York State Homes and Community Renewal records what this looks like. When the buyer acquired 13 buildings, the tenants' deposits came over as a credit on the closing statements rather than as funded accounts. The buyer never set up segregated deposit accounts for existing tenants, and new tenants' deposits went into its operating accounts.

When we take over management of a building, reconciling each deposit on the rent roll against the money actually held is part of onboarding. On a new acquisition, the statute's 30-day notice window is the time to find the gaps.

Commercial Deposits

Commercial leases follow a narrower set of rules. Section 7-103's trust rules apply: the deposit is held in trust, never commingled, banked in New York with notice to the tenant, and subject to the same anti-waiver rule. Section 7-105 applies on a sale. Section 7-108 does not, which means no one-month cap, no 14-day statement, and no statutory punitive damages. The lease governs when and how the deposit comes back.

The trust rules still bite. Under First Department precedent, commingling a deposit "gives rise to an action in conversion and the right to immediate return of the funds," even if the tenant has breached the lease (as collected in Urban Soccer v Royal Wine, Supreme Court, New York County, 2016). In that case the landlord escaped the claim by producing a bank statement showing the deposit had been kept separate, although the court found that holding it at a New Jersey branch violated the in-state requirement. The records were what saved it.

Because there is no cap, commercial deposits are sized to risk. In our commercial leasing work, deposits usually run about three months' rent. Broker-published ranges put strong-credit tenants at two to four months and early-stage companies at six to twelve, and brokers describe larger deposits being posted as letters of credit, sometimes stepping down after a run of on-time payments. One open question for mixed-use owners: whether a commercial tenant's deposit in a building with six or more apartments must earn interest is not clearly answered by the statute. Ask counsel before assuming either way.

Frequently Asked Questions

The Bottom Line

New York's security deposit law does not care much about intentions. The landlord in Campbell had real damage and photographs to prove it, missed the deadline by a single day, and returned every dollar. The largest losses in this guide came from systems that failed: money in the wrong account, a statement that never went out, a lease clause nobody checked.

The rules themselves are short. One month's rent, held in trust. A New York bank and a written notice. Inspections offered at both ends. An itemized statement in writing within 14 days of move-out, with the records to back every line. Rent-stabilized apartments now follow the same rules, lease by lease. The hard part is applying them every time, in every apartment, on deadlines that do not move.

This guide reflects New York security deposit law as of October 2026, including General Obligations Law Article 7 as amended by the Housing Stability and Tenant Protection Act (2019) and Chapter 436 of the Laws of 2025, along with court decisions available as of that date. Outcomes in deposit disputes turn on specific facts and documents. For advice on a particular lease or building, contact our team or consult a qualified New York real estate attorney.