What is a Security Deposit on a NYC Rental Application?
Getting an apartment you want in New York City usually starts with putting down a security deposit.
This doesn't guarantee the apartment, but generally shows a serious interest in your chosen unit or property.
But what exactly is a security deposit, and why do you really need one?
A security deposit is a form of insurance for your landlord. This money is put aside and will be used for situations where there is damage to the apartment, missed/delinquent rent, or a broken lease.
If all plays out well during your residence, you should receive this money back at the end of your lease or when you move out.
What Is a Security Deposit?
- A security deposit is a form of insurance for your landlord for payment in arrears and any damage to the apartment.
- A security deposit is one month's worth of rent. It may be less, depending on your landlord.
- A deposit can be requested at the time of your application or at lease signing, depending on the policy of your landlord or management company.
- Your landlord is required to put your deposit in an interest-bearing account.
- If you have fulfilled your duties as a faithful tenant, then you are entitled to your security deposit back along with an interest, and minus any administrative fees incurred.
- You should expect your deposit back within 14 days of the end of your lease term.
- If you have damaged the apartment, your landlord may deduct expenses for repairs from your deposit.
- You might be able to purchase security deposit insurance instead of providing a deposit to your landlord.
How Much is a Security Deposit?
This really depends on your landlord or management company.
A standard lease will require one month's worth of rent as security, but not too long ago some would ask for two or three months.
New York State passed a law in 2019 limiting the security deposit amount to one month's worth.
This is also true for all non-regulated units (units that are not rent-controlled or rent-stabilized.)
If your apartment becomes rent-stabilized after you signed a lease, then the original security deposit applies as long as the amount collected equaled less than two months.
When Do I Have to Pay the Security Deposit?
Technically, you don't really have to cough up the deposit until you sign the lease.
If you happen to sign the lease, but don't bring your deposit, you probably won't be receiving the keys to your new place.
You might have been pushed by real estate agents or management companies to put down a deposit right away, oftentimes before you even fill out the application.
You might ask: is an earnest money deposit the same thing as a security deposit?
The truth is that sometimes this answer is yes and sometimes it is no. Much depends on the way a brokerage or management company operates.
Some agencies require a small deposit anywhere from a few hundred to a thousand dollars as a show of "good faith".
Others say you can pay as little as that amount or opt to pay the full security upfront. And still, others require the full month.
A full month's deposit will normally go towards the security or the broker's fee.
If you don't end up getting the apartment, this deposit should be completely refundable. However, there can be special exceptions.
Make sure you know what the agency or management company's refund policy is beforehand and that it's spelled out for before you remit payment.
A legitimate agency will have you sign an agreement regarding any earnest money.
In scenarios where only a partial deposit is collected, there are two things that can happen.
- The deposit is refunded to you and you bring the full security deposit to the lease signing.
- The deposit is put in escrow, later being handed over to the landlord and you will be required to bring the remaining balance to the lease signing.
What If I Don't Want to Put Down the Deposit Right Away?
As mentioned before, technically, in most cases the security deposit is not required prior to lease signing.
However, there are some landlords or management companies who will not consider your application until they also have the security deposit.
Furthermore, putting down the security deposit can help you.
For example, if there is more than one application on a particular unit with similar credentials, a tie-breaker might be who put a deposit down first.
It does help get your footing down and can help you seal the deal. An application, with complete paperwork and a deposit most likely, will be considered first.
However, you can still very much lose out on the desired unit if you do not complete the rest of the application process in a timely manner.
How Do I Pay the Security Deposit?
Security deposits usually must be certified funds.
This means you must pay this amount to the agent, management company, or landlord as a cashiers check, money order, electronic ACH payments, or even credit card.
Nowadays, are there numerous websites and apps that landlords and brokerages can use to collect these funds such as through banking apps and payment services.
Electronic payments will be put into an escrow account by the brokerage, and then released to the landlord after the lease is signed.
Of course, in the case of partial payments as mentioned above, this amount might be refunded to you instead.
Very rarely, you might encounter a landlord that requires all cash.
This will more likely be a mom-and-pop landlord, but even then, this should raise an eyebrow.
Make sure you always protect yourself first.
If you feel an inkling of suspicion or discomfort, back away.
It's not a good idea to hand over cash to someone claiming to be a building manager or a real estate agent.
What If I Can't Pay the Security Deposit?
Many New Yorkers have been put in this tough spot. It's a lot of cash one has to put up just to move into your desired apartment.
If you're lucky you've found an apartment where the landlord is giving a month free.
However, if you're not you might be put in a position of either advancing cash from a credit card or borrowing from a friend or relative.
No one wants to be that person.
Luckily, there are security deposit insurance companies that might be able to help you out if you have just a little extra cash.
Read on: What to Do If You Can't Pay the Security Deposit in New York
What Are the Other Fees I'll Be Responsible For?
Besides earnest money/security deposit, you'll be asked to pay a nonrefundable application fee.
The fee may be anywhere from $25-$200.
This is left to the discretion of the landlord, brokerage, or management company.
Oftentimes, a third-party site like On-Site might be used. In this case, the fee goes directly to the third-party and not to the agent or landlord.
The reason this fee is nonrefundable is that the fee goes towards the credit check and administrative expenses.
Needless to say, for some parties, this is also an easy way of making a few extra bucks tacked onto the fee.
The other payments due at lease signing will be the first month's rent.
Under a new law passed in 2019, New York City landlords can no longer request the last month's rent.
What If I Don't Have the Full Security at Lease Signing?
This can happen to the best of us.
If you are strapped for cash and you need to come up with the full amount in a week's time, you can try to ask the landlord for an extension.
This really will depend on the goodwill of the landlord.
If you have competition for the same apartment, you may not end up getting your way.
You might suggest paying for the full security and half the first month's rent upfront, and either promise the second half in two weeks or organize some kind of payment schedule.
Naturally, most landlords would like to avoid this at all costs as this adds uncertainty to their financial status.
Having great credit and providing solid proof of income can help your cause, but not guarantee you the apartment.
Another idea might be to ask for a free month for the first month, but offer to pay higher rent per month (make sure you can afford this), to offset the first month.
A landlord might be more willing to make this deal, especially if you sign up for a longer lease.
Note that a landlord cannot offer a lease outside of a 12-month or 24-month increment for rent-stabilized units.
Another way to forego the security deposit is to use security deposit insurance instead.
Companies like Rhino and Jetty are offering renters a monthly insurance premium instead of paying their landlord a deposit.
In turn, the insurance company guarantees the security deposit in cases of rent default or damages. The only caveat is that your landlord has to be willing to take this insurance arrangement.
In cases where you are already working with a third-party guarantor company like Insurent, The Guarantors, Leap, or Jetty, you can just add the security deposit guaranty to your policy.
What Happens to My Deposit After I Sign the Lease?
By law, the landlord should deposit this money in a special escrow account designated for security deposits.
These are usually low-yield interest accounts.
You are not only entitled to have this security back if you fulfill your obligations according to your lease but the interest as well (minus 1% for administrative fees).
You should be given the name and address of the bank, as technically, it is still your money.
Your landlord legally cannot touch this money as it rightfully belongs to the tenant as long as the conditions of the lease are not violated by the tenant.
Don't expect huge returns or any on your security deposit as interest rates tend to be 1% or lower.
Take note that the security deposit for rent-stabilized apartments cannot legally be used for the last month of rent.
The last month should be paid by the tenant, and the security deposit returned after the lease is vacated.
How Do I Know If I'm Being Scammed?
We've all heard of nightmare stories of people who unwittingly handed over money for an apartment to someone who ended up ghosting them with their money.
Here are some tips on how you can avoid being taken for a ride.
Never make a check out directly to a rental agent's name.
Sometimes, you might get the apartment anyway because the agent's goal to cheat his/her own brokerage and not you, but this is an illegal practice.
New York State prohibits payments (including broker's fees) from being made out to individual agents as this deposit must go into an escrow account.
A check may include the name of the broker if the name of the brokerage contains the name of the broker, but the full legal entity must be stated.
For example, if the name of the brokerage is John A. Smith Brokerage LLC, then that full title must be used, even if you are working with John A. Smith himself.
And would you really want to work with a dishonest agent?
When in doubt, ask for the agency/brokerage's name or management company's name and do a google search for complaints or scams.
One good way to avoid scams is to check if the brokerage or agency is a REBNY (Real Estate Board of NYC) member.
REBNY requires that its member agencies and each of their agents abide by a set code of ethics and NY state law.
Never hand over money before you see an apartment.
An agent will tell you an apartment is in high demand and require a deposit before seeing the apartment.
Sound fishy? That's because it is.
If the apartment you see online seems too good to be true, it probably is.
Never hand over a deposit if an earnest money deposit agreement and acknowledgment is not given to you, clearly outlining the refund policy.
Avoid any cash transactions.
Can a Landlord Ask Me for Additional Securities?
No. Under the same law passed in 2019 in New York State prohibiting the last month of rent upfront, the landlord can only legally ask for one month's worth for security at the maximum.
Read more: What Credit Score Do You Need to Rent an Apartment in NYC?
Also, find out what you can do if you are suffering with bad credit, or it just needs a boost.
You also might be asked if you are renewing your lease. Your rent will generally go up the following year.
If so, you will have to equalize your security to the new rent meaning you'll only need to remit the difference. This is standard practice.
Another reason a landlord can ask you for an additional deposit is if you have a pet, namely a dog or dogs.
This deposit is not technically considered your security deposit and may be labeled a pet fee or a pet deposit.
It's not only a way for them to make an extra buck but provide extra security for any damage your furry friend may inflict on the apartment or general premises.
Your landlord can ask you for this fee or deposit even if you got the pet after you moved in. If you don't, they may see you in violation of the lease.
To find out everything you need to know about owning a pet in New York, read up on our pet guide.
When Can a Landlord Withhold My Security Deposit?
As stated in your lease, the landlord can deduct any cost to repair damages you have made to the apartment.
Examples of what this entails should be outlined in the lease.
For instance, this could be damaging to floors, appliances, walls, windows and apartment amenities, both cosmetic and functional.
Many landlords will require you to repair nail holes in the walls. They could also deduct for painting costs if you've painted the apartment a different color.
Another prime example of when a landlord can withhold your security is if you break the lease before it is up.
This is a violation of your contract and the landlord is entitled to compensation.
Of course, if you've made an arrangement with your landlord prior to breaking it, they may be willing to return it to you, especially if they've already found a new tenant.
If your rent is in arrears by the time your lease is up, you'll probably not be seeing your security deposit.
There are different reasons why someone might stop paying their rent, but it may be very difficult for you to get your money returned.
You can also have your deposit withheld even before signing a lease.
Deposits are normally refundable, but there are situations where this may not be the case.
If you put money down for an apartment but back out or drag your feet, the landlord may want compensation for lost rent and time.
This can also happen if you change your mind about the apartment after signing the lease.
Read your earnest money deposit agreement carefully, and when in doubt ask questions before signing and placing your deposit.
What If I Already Moved and Haven't Received My Security Back?
The law used to allow for what's stated as a "reasonable" amount of time for the landlord to return our deposit in the case that everything is in order.
However, NY State requires that a landlord must return your deposit within 14 days.
If you think you have a case or if the landlord wrongfully does not have any intention of returning your deposit, you can take him or her to small claims court.
Be wary that even if you win in small claims court, actual enforcement can be very difficult.
Small claims are also the avenue to take if you feel the landlord has improperly deducted charges from your deposit.
The best way to avoid these situations is to come to an understanding with your landlord before the lease is up and you vacate the apartment.
You can do this by trying your best to build a good rapport with your landlord, pay your rent on time, and schedule for a final walk-through before you move out and hand over the keys.
This way you can document together with the condition of the apartment and come to a mutual agreement on any damage and deductions.
At this time, you can also volunteer to make the repairs yourself.
The best way to protect yourself is to read the details of your lease and read up on your tenant rights.
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