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Security Deposit Cannot be Used by Landlord to Offset Unpaid Rent

Tenants often put down a security deposit when they rent an apartment. New York law provides that the landlord takes this deposit and must maintain the tenant's security deposit seperate and apart from his or her personal funds/assets. This is because the landlord acts as a trustee and the money is not at the landlord's disposal but remains the tenant's. Although confusing, while the tenant can utilize that money, the security deposit, to offset monies due for rent, the landlord cannot take such monies unilateral to satisfy outstanding rent payments. Bruce Freeman, author of New York State Bar Association's Case Prep Plus said the following about a recent case reitterating this longstanding rule:

In finding the special referee exceeded the scope of the reference from Supreme Court, the First Department explained the consequences of a landlord’s failure to place a security deposit in a separate account pursuant to General Obligations Law 7-103: “Section 7-103 prohibits landlords from commingling security deposits with their own funds. Violation of the statute gives rise to an action in conversion and the right to immediate return of the funds ... . A landlord who violates Section 7-103 of the General Obligations Law cannot use the security as an offset against unpaid rents. This is so because a landlord is considered to be a trustee with respect to those funds deposited as security. To allow the landlord to set off the rent against the deposit would be to treat the deposit as a debt and the landlord as a debtor, the situation the statute was enacted to change ... .The same logic does not pertain where a tenant seeks to apply the security deposit to reduce amounts found owing to the landlord.” 23 E. 39th St. Mgt. Corp. v 23 E. 39th St. Dev., LLC, 2015 NY Slip Op 09605, 1st Dept 12-29-15


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