Hochul pledges to close security deposit loophole for New York tenants

Gov. Kathy Hochul is pledging to close a legal loophole that allows some New York City landlords to keep their tenants’ security deposits without giving a reason.

But housing advocates say the governor’s proposal is not enough to ensure tenants actually get their money back.

Current state law requires most property owners to return tenants’ security deposits or provide a justification for keeping the money within 14 days of a tenant moving out. But that law, enacted in 2019, doesn’t apply to roughly 1 million rent-stabilized apartments citywide. In a list of policy goals accompanying her State of the State speech on Tuesday, Hochul said rent-stabilized tenants were “erroneously” left out of the law and she'll propose new legislation requiring all owners to comply with the two-week rule.

The pledge comes a month after Gothamist first reported that tenants filed roughly 5,000 complaints with the state attorney general’s office, claiming that their landlords illegally withheld their security deposits over the past two years. The investigation revealed the onerous, time-consuming process faced by tenants who try to recover the money through the city’s small claims court system — and how many renters still can’t get the cash back even after they win a judgement in their favor. The reporting led one landlord to return overdue deposits to three separate former tenants.

One key lawmaker told Gothamist that Hochul’s proposal is a good start, but said the state needs additional rules to ensure owners actually comply with the law.

“Tenants shouldn’t have to exert so much energy and effort to try to get back what is theirs,” said Assemblymember Linda Rosenthal, chair of the chamber’s housing committee. “I would impose a penalty for landlords who don’t return the security deposit in a timely manner.”

Rosenthal, who is already sponsoring a bill to allow tenants to pay security deposits in installments, said she is now considering legislation to fine landlords who fail to return security deposits or explain why they are withholding the money.

She likened the potential penalty to the impact of a new $500 monthly fine for landlords who fail to register their rent-regulated units with the state’s housing agency. After the penalty took effect last year, tens of thousands of additional property owners registered their apartments on time compared to previous years.

In an annual report issued last month, state Division of Housing and Community Renewal Commissioner RuthAnne Visnauskas said the threat of fines “proved effective and dramatically increased owner compliance with registration deadlines.”

Judith Goldiner, the head of the Legal Aid Society’s civil reform unit, also said the 14-day window doesn’t address the problem of enforcement.

“There should be better ways to ensure tenants are going to get their money back and ways to make that happen that don’t involve going to court,” Goldiner said.

Landlords, on the other hand, say they are often forced to make significant repairs after tenants move out. If those repairs cost more than the amount of the security deposit, they typically have to absorb the extra expenses.

Property owners are legally entitled to keep a security deposit if tenants don’t pay the last month’s rent or damage their apartments, but not for typical wear and tear. Landlords have complained that new regulations only add to their already rising costs.

Jay Martin, executive vice president of external affairs at the newly formed landlord trade group New York Apartment Association, said most landlords quickly return deposits.

“Our members are not in the business of profiting from security deposits, which are needed to ensure apartments are maintained equally by owners and renters during tenancy,” Martin said.