State AG Recovers Illegally Held Security Deposits for 900 Tenants

Attorney General Letitia James’ office recently announced that it had recovered more than $422,000 from Fairfield Properties, one of Long Island’s largest apartment owner. The real estate company illegally withheld full or partial security deposits without providing tenants with a written itemized list of deductions, inspected apartments without the tenant present, and did not allow tenants to make repairs before vacating their apartment to avoid penalties.

The context: A security deposit is money a tenant deposits with the building owner that protects the owner if the tenant stops paying rent, skips out early on the lease, or damages the apartment. In New York, security deposits are governed by New York General Obligations Law §§7-103 to 7-108 and, most recently, the Housing Stability and Tenant Protection Act of 2019 (HSTPA).

An owner must return the security deposit within 14 days of the tenant moving out. If an owner takes any money out of the security deposit for damages, the owner must provide an itemized “receipt” describing the damage and its cost. If an owner doesn’t provide this receipt within 14 days of the tenant moving out, the owner must return the entire security deposit, whether there is damage or not.

Owners can use the security deposit only when the lease or tenancy ends or terminates. Also, an owner can use the security deposit to cover only the following:

• Unpaid rent;
• Damage caused by the tenant beyond normal wear and tear;
• Unpaid utility charges provided in the lease; and
• Costs of storing or moving the tenant’s belongings not removed from the unit when the tenant vacated.

However, an owner can’t deduct from the security deposit the cost of repairs or damage found in the initial inspection. The HSTPA includes a requirement that owners offer the tenant the opportunity to inspect the apartment to determine its pre-occupancy condition. This initial inspection is performed after the initial lease signing but before occupancy. If there’s an initial inspection, the parties must execute a written agreement before the tenant moves in. The agreement should state the condition of the unit and details of the existing defects and damages discovered during the initial inspection. The initial inspection agreement may be admissible for evidence related to the security deposit.

New York law also requires landlords to give tenants written notice of their right to be present when the apartment is inspected and must allow tenants the opportunity to clean or fix anything that would be deducted from their security deposit. Fairfield routinely inspected apartments without the tenant present and did not give tenants the opportunity to make repairs or clean their apartment before vacating it. 

What’s Next: As a result of the agreement reached with the AG’s office, Fairfield must return security deposits that it illegally withheld to approximately 900 former tenants, including interest, and pay $90,000 in penalties to the state and will be required to provide reports to Office of the Attorney General (OAG) about its compliance with this agreement. The company has agreed to comply with all laws regarding security deposits and must send certificates affirming their compliance every year or whenever requested by OAG for three years. They will also train current staff on correct security deposit procedures and will provide annual trainings in the future.