A recent decision of the New York County Supreme Court[1] stressed that the statute governing the holding of security deposits[2] applies to cooperative apartments.  Although, as a matter of practice, most cooperatives comply with the provisions of the statute, it is worth reviewing the statutory requirements.  The statute requires all landlords (including cooperatives) that hold security deposits in connection with leases (including proprietary leases and subleases) to place such deposits into segregated bank accounts and not to commingle the deposits with any other funds.  In addition, for buildings of six or more residential units, the segregated account must be interest-bearing, and the interest must be paid to the tenant no less than once per year (minus 1% that may be retained as an administrative fee).  Failure to comply with these requirements entitles the tenant to receive an immediate and complete refund of the security deposit in addition to payment of interest.

All deposits of tenant-shareholders are governed by this rule:  security for the payment of maintenance, for the performance of alterations, or for compliance by the tenant with any other obligation connected to the tenant’s proprietary lease or use of the apartment.  Therefore, it is important that all security deposits be placed by the managing agent in a segregated account.  This also serves the practical purpose of permitting the managing agent and cooperative to keep track of the deposits.

Although there has been no case applying this law to condominiums, a condominium and its managing agent should keep any deposits of unit owners for the payment of common charges or other condominium matters in segregated accounts to permit easy tracking and to prevent loss of the funds.   The obligations clearly do, however, apply to any rental of a condominium unit in which the tenant posts a security deposit, with the obligations then resting with the owner of the unit and not the board of managers.

If you have any questions or concerns about security deposits, please call us.

[1]  Vidipax LLC v. Brown Bear Realty Corp., N.Y.L.J., Jan. 14, 2009, at 27, col. 1.

[2]  N.Y. General Obligations Law § 7-103.

This memorandum was initially issued by the cooperative/condominium practice group of Balber Pickard Maldonado & Van Der Tuin, PC which joined Smith, Gambrell & Russell, LLP on February 1, 2017 and now practices as part of SGR’s cooperative/condominium practice group.