New York Security Deposit Checklist: Cap, Timeline, and Tenant Lawsuit Rights Under HSTPA
New York's Housing Stability and Tenant Protection Act of 2019 (HSTPA) rewrote the rules for security deposits across the state. RPL 7-108 now caps deposits at one month rent for market rate units, while rent stabilized apartments face even tighter restrictions. The New York State Attorney General enforces these protections, and housing courts hear thousands of deposit disputes each year. If you manage rental property in New York City, Long Island, or upstate, this checklist ensures you stay compliant and avoid costly litigation.
Deposit Cap: One Month Rent Maximum
RPL 7-108 limits security deposits to one month rent for most residential leases. If your monthly rent is $2,000, you cannot collect more than $2,000 as a deposit. This cap applies statewide, whether you own a studio in Manhattan, a two family home in Buffalo, or a converted farmhouse in the Hudson Valley.
Rent stabilized units face stricter limits under RPL 226-c. For tenants who moved in before HSTPA, deposits cannot exceed one month rent. For new tenants after June 14, 2019, you can collect no deposit at all if the lease is a renewal, and only one month rent for initial occupancy. Verify your building's registration status with the New York State Division of Housing and Community Renewal before collecting any deposit on a stabilized unit.
The one month cap includes all money held as security. If you call it a "last month" deposit, a "damage fund," or a "cleaning fee," it still counts toward the one month limit. Violating this cap exposes you to statutory damages. Tenants can sue in housing court for return of the excess plus penalties.
Interest Requirements: Annual Compounding
RPL 235-b requires landlords of buildings with six or more units to pay annual interest on security deposits. You must calculate interest at the rate set by the New York State Comptroller each year, typically around 0.5 percent to 1 percent. For 2025, the rate is 0.75 percent. For 2026, check the Comptroller's website in January.
You have two options for paying interest. First, you can mail a check or credit the tenant's rent account each year on the anniversary of the lease start date. Second, you can apply the accumulated interest to rent at the end of the lease. Most landlords choose annual payments to avoid bookkeeping headaches at turnover.
Buildings with five or fewer units are exempt from the interest requirement. If you own a three family brownstone in Brooklyn, you do not owe interest. But if you manage a 20 unit walk up in Queens, you must track and pay interest on every deposit.
Separate Account or Surety Bond
RPL 7-103 requires deposits to be held in a New York bank account separate from your operating funds, or you must post a surety bond. The separate account can be interest bearing or non-interest bearing, but it must be in a bank chartered to do business in New York. Out of state accounts do not comply.
Alternatively, you can purchase a surety bond equal to the total deposits held. Bonds cost roughly 1 percent to 2 percent of the face value per year. Most landlords with fewer than 50 units find a separate bank account simpler and cheaper.
If you commingle deposits with your personal checking or business operating account, tenants can sue for immediate return of the full deposit under RPL 7-108. Courts routinely grant summary judgment for tenants in commingling cases.
Return Timeline: Reasonable Time, Usually 14 to 30 Days
New York does not specify an exact deadline for returning deposits in statute, but RPL 7-108 requires return within a "reasonable time" after the tenant vacates. Courts typically interpret reasonable time as 14 to 30 days. The New York State Attorney General guidance suggests 14 days as best practice.
If you withhold any portion of the deposit for damages, you must provide an itemized statement within that same reasonable time window. The statement must list specific repairs, the cost of each, and receipts or invoices where available. Generic descriptions like "cleaning" or "wear and tear" do not satisfy the itemization requirement.
For example, if you manage a two bedroom apartment in Albany and the tenant leaves on May 15, you should inspect by May 17, complete repairs by May 25, and mail the balance plus itemization by May 29. Delays beyond 30 days without clear cause often result in tenants filing small claims or housing court petitions.
Deductions: Normal Wear Allowed, Damage Not
RPL 235-b and common law allow deductions only for damage beyond normal wear and tear. You cannot charge for faded paint after a three year tenancy, worn carpet in high traffic areas, or scuffed baseboards. You can deduct for holes in walls, pet stains, broken appliances, or missing fixtures.
Document the unit condition at move in and move out. Take time stamped photos of every room, upload them to cloud storage, and share access with the tenant. If you skip documentation and later try to withhold $800 for carpet replacement, the tenant will likely win in court.
Cleaning fees are permissible if the unit is left substantially dirtier than at move in. A dusty shelf is normal. A kitchen caked with grease and spoiled food justifies a cleaning deduction. Provide receipts from your cleaning contractor to support the charge.
What Tenants Can Sue Over
Tenants can file suit in housing court or small claims court for any of these violations:
- Collecting more than one month rent as deposit (RPL 7-108).
- Failing to pay required interest (RPL 235-b).
- Commingling deposits with personal or business funds (RPL 7-103).
- Withholding deposits without itemized statement.
- Deducting for normal wear and tear.
- Failing to return deposits within a reasonable time.
Statutory penalties under RPL 7-108 allow tenants to recover double the wrongfully withheld amount. If you kept a $2,000 deposit without cause, the court may award $4,000 plus court costs. Add in attorney fees under some local ordinances, and a simple dispute balloons into a $6,000 judgment.
New York City Housing Court hears roughly 25,000 deposit cases per year. The Attorney General's office fields thousands of complaints annually. Even upstate landlords face aggressive tenant representation from legal aid societies.
NYC Rent Stabilized Units: Special Rules
RPL 226-c imposes additional restrictions on rent stabilized apartments, which cover over one million units in New York City. For leases signed after June 14, 2019, you cannot collect any deposit on a renewal lease. For initial leases, the one month cap applies, but you must register the deposit amount with the Division of Housing and Community Renewal.
If your building is rent stabilized and you collected a deposit before HSTPA, you must still comply with interest and return requirements. Failure to register deposits or pay interest can result in DHCR penalties separate from tenant lawsuits.
Local Example: Hudson Valley Turnover
A landlord in Kingston managed a single family rental near the IBM campus. When the tenant vacated in March 2025, the landlord held the $1,800 deposit for 45 days, citing slow contractor scheduling. The tenant filed in small claims court. The judge awarded the full deposit plus $400 in statutory damages, noting that 45 days exceeded reasonable time and the landlord provided no itemization. The case took three months and cost $1,200 in lost time and legal fees.
Had the landlord returned the deposit within 21 days with photos and receipts for a broken cabinet, the outcome would have been a $300 deduction and no litigation.
Checklist Action Items
- Verify deposit does not exceed one month rent.
- Open separate New York bank account for all deposits.
- Calculate and pay annual interest if you own six or more units.
- Inspect unit within 72 hours of tenant vacating.
- Document condition with time stamped photos.
- Mail deposit balance and itemized statement within 14 to 21 days.
- Retain receipts for all repair deductions for at least three years.
- Consult an attorney for your specific situation if you manage rent stabilized units or face a tenant dispute.
Manorway Makes Compliance Automatic
Manorway Rentals tracks deposit caps, interest accrual, and return deadlines for every unit in your portfolio. The AI assisted platform generates itemized statements with attached photos, sends tenant notifications on schedule, and archives all records for audit. You focus on tenant relationships while Manorway ensures you never miss a statutory deadline.
Visit manorwayrentals.com to see how Manorway turns New York security deposit compliance into a single click workflow.