Q: New York State - when exactly are security deposits required to be placed in an interest bearing account?
I currently own one 4-unit building and plan to purchase additional properties in the near future, all in NY. From what I gather in the responses, the 6-unit law pertains to an individual building, not the total number of units a landlord owns, correct?
Also, I read that if the deposit amount is $750 or greater it might be required to be placed in an interest-bearing account. Is that accurate?
A: Security deposits are intended to be placed in a designated security or escrow account upon receipt. Generally, the parties can negotiate for the money to be deposited in an interest earning account. However, since the landlord is also generally allowed to keep up to 1% of any interest earned as an administrative fee and interest rates are so low, there is usually very little accrued interest to distribute back when the security deposit is returned.
A: If the building has 6 or more residential units, they are required to keep the deposit in an interest bearing account. New York General Obligations Law Section 7-103.
General Obligations law § 7-103(2-a) states that "Whenever the money so deposited or advanced is for the rental of property containing six or more family dwelling units, the person receiving such money shall, subject to the provisions of this section, deposit it in an interest bearing account in a banking organization within the state which account shall earn interest at a rate which shall be the prevailing rate earned by other such deposits made with banking organizations in such area."
The caveat is that the landlord is entitled to retain a one percent fee as an administration expense. Current banking interest rates are generally under one percent, so you may receive no interest.
General Obligations law § 7-103(2)"If the person depositing such security money in a banking organization shall deposit same in an interest bearing account, he shall be entitled to receive, as administration expenses, a sum equivalent to one per cent per annum upon the security money so deposited, which shall be in lieu of all other administrative and custodial expenses."
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