Key Takeaways
- Maximum deposit is one month's rent statewide — New York General Obligations Law §7-108 applies uniformly across all municipalities, from New York City to rural upstate counties
- Overcharging triggers automatic damages — Tenants can sue for triple the overcharge amount plus attorney's fees under §7-108(4), even for $100 overages
- Interest-bearing account required — You must place deposits in a separate, interest-bearing bank account and remit accrued interest to tenants at lease end, minus lawful deductions
- Deposit receipt and written notice mandatory — You must provide a receipt identifying the account location and bank name within 30 days of receiving the deposit
- Prohibited charges disguised as deposits — Key fees, cleaning fees, or pet deposits beyond the one-month cap violate the statute and expose you to treble damages
- No local override allowed — Towns and cities cannot impose stricter rules; the state cap is the floor and the ceiling for most landlords
What Is New York's Security Deposit Cap?
New York General Obligations Law §7-108, also known as the Housing and Community Renewal Act (HSTPA) provision, sets a hard ceiling: security deposits cannot exceed one month's rent. This rule has applied statewide since 1997 and remains one of the most frequently violated landlord duties in the state.
The statute reads: "The security deposit shall not exceed the equivalent of one month's rent." That's it. No exceptions for luxury units, no add-ons for parking, no separate pet deposits beyond this cap. One month. Full stop.
For a tenant signing a lease at $2,000/month, your maximum security deposit is $2,000. If your lease requires $2,500, you are in violation of §7-108 and liable for statutory damages.
Who Does §7-108 Apply To?
§7-108 applies to all residential rental properties in New York State, with narrow exceptions:
- Single-family homes — Generally exempt if the owner occupies the property or if there are fewer than four rental units in the building
- Owner-occupied buildings — If you live in one unit of a multi-unit building and rent out the others, the statute may not apply to units you occupy
- Commercial space — Business leases are not covered
If you self-manage 2–75 units as described, you are almost certainly covered. The threshold exemption (buildings with fewer than four units or single-family rentals with an occupying owner) is narrow and fact-dependent. When in doubt, comply.
The Specific Requirements Under GOL §7-108
Deposit Amount Cap
Your lease or move-in documentation cannot require:
- First month's rent AND a security deposit exceeding one month's rent combined
- Last month's rent held as a security deposit (some landlords try this; it is not permitted under current §7-108 interpretation)
- Key deposits, cleaning fees, application fees, or "holding deposits" that push the total above one month
- Pet deposits as a separate charge beyond the one-month cap
Example: If rent is $1,800/month, you may collect $1,800 as a security deposit. You may also collect first month's rent ($1,800) and last month's rent ($1,800) if your lease includes a last-month provision, but those are separate from the security deposit cap and must be clearly labeled.
Account and Interest Requirements
§7-108(2) mandates that you place all security deposits in a separate, interest-bearing account at a bank or trust company licensed to do business in New York. The account must:
- Be held in trust (the bank must know the funds are tenant deposits, not your operating capital)
- Earn interest at the rate set by the New York State Banking Board (currently, the statutory interest requirement varies but typically requires savings account rates)
- Be commingled only with other security deposits — not your rent or operating funds
At the end of the tenancy, you must remit all accrued interest to the tenant, minus any lawful deductions for unpaid rent, damage, or lease violations.
Receipt and Written Notice (30-Day Requirement)
Within 30 days of receiving a security deposit, you must provide the tenant with a written notice that includes:
- The name and address of the bank or financial institution where the deposit is held
- The account number (or a reference allowing the tenant to identify the account)
- The amount of the deposit
- A statement that the deposit is being held in accordance with §7-108
This notice must be separate from the lease and provided in writing (email is acceptable if the tenant agrees; otherwise, certified mail or hand delivery is advisable for proof).
Failure to provide this notice is a violation of §7-108(3) and can result in tenant claims for damages and attorney's fees.
Return of Deposit and Interest at Lease End
Within a reasonable time after the tenant vacates (typically 30 days is considered reasonable, though the statute does not specify an exact deadline), you must:
- Return the full deposit plus accrued interest
- Itemize any deductions for unpaid rent, utilities, or damage beyond normal wear and tear
- Provide the itemization in writing with receipts or documentation supporting major claims
You may not deduct for normal wear and tear, pre-existing damage, or maintenance costs unrelated to the tenant's conduct.
Penalties for Violating §7-108
Treble Damages (Triple the Overcharge)
Under §7-108(4), if you overcharge a tenant by collecting more than one month's rent as a security deposit, the tenant can sue and recover:
- Three times the overcharge amount, plus
- Attorney's fees and court costs
Example: You collect $2,500 as a "security deposit" when rent is $2,000. The overcharge is $500. The tenant can sue and recover $1,500 (3 × $500) plus attorney's fees.
This applies even if you collected the overcharge in good faith or by mistake. The statute is strict liability — intent does not matter.
Failure to Provide Receipt or Account Notice
If you fail to provide the 30-day notice with bank account details:
- The tenant may assume you did not deposit the funds in a proper account
- The tenant can sue for the return of the full deposit plus interest, plus damages
- Courts have awarded damages for breach of the deposit holding requirement
Some courts have held that failure to provide proper notice shifts the burden to you to prove the deposit was properly held.
Failure to Pay Interest
If you fail to remit accrued interest at lease end:
- The tenant can recover the unpaid interest plus damages
- The tenant can pursue a claim in Small Claims Court (up to $5,000 in most counties)
Interest accrual is not optional — it is a statutory requirement.
Administrative Enforcement
The New York State Attorney General (AG) and local District Attorneys can also pursue enforcement:
- Civil penalties up to $5,000 per violation
- Cease-and-desist orders
- Restitution orders requiring you to return deposits with interest and damages to affected tenants
The AG's Housing Bureau has brought cases against landlords for systematic overcharging and mishandling of deposits.
Common Violations and How to Avoid Them
Violation #1: Charging Multiple "Deposits" or Fees Beyond One Month
What landlords do: Charge "first month's rent + last month's rent + security deposit + key deposit + pet deposit + cleaning fee" totaling $5,000+ on a $2,000 apartment.
Why it violates §7-108: Any charge that functions as a security (a sum held to cover losses or damage) counts toward the one-month cap. A "key deposit" is a security deposit. A "pet deposit" is a security deposit. A "cleaning fee" held against future damage is a security deposit.
How to comply:
- Cap the total security deposit at one month's rent
- Collect first month's rent separately and clearly label it "First Month's Rent" on the lease
- If you require last month's rent, label it and collect it as last-month rent, not as part of the security deposit (though New York courts have questioned whether last-month rent provisions are enforceable; consult an attorney)
- Do not collect pet deposits, key deposits, or cleaning fees on top of the security deposit
- If you want to charge for pet occupancy, add it to the monthly rent and disclose it clearly
Violation #2: Failing to Provide the 30-Day Account Notice
What landlords do: Collect the deposit, deposit it in a bank account, and assume the tenant knows where it is.
Why it violates §7-108: The statute requires you to provide written notice within 30 days. This is an affirmative duty — you cannot assume the tenant will ask.
How to comply:
- Create a template "Security Deposit Receipt" that includes:
- Date received
- Amount
- Bank name (e.g., "Chase Bank, N.A.")
- Bank address (the branch where the account is held)
- Account number or identifier (if you prefer not to disclose the full account number, use the last four digits or a code)
- Statement: "This deposit is held in a separate, interest-bearing account in accordance with New York General Obligations Law §7-108."
- Send this within 30 days via email (if the tenant has agreed to electronic notice) or certified mail
- Keep a copy for your records with proof of delivery
Violation #3: Commingling Deposits With Operating Funds
What landlords do: Deposit tenant security deposits in the same business checking account used to pay for repairs, utilities, and payroll.
Why it violates §7-108: The statute requires a separate account held in trust. Commingling makes it impossible to prove the funds are held as deposits and not your property.
How to comply:
- Open a dedicated security deposit savings or money market account at any bank licensed in New York
- Ensure the account is labeled as a trust account (many banks require you to indicate this)
- Do not withdraw from this account except to return deposits or pay accrued interest to tenants
- Do not sweep funds to cover shortfalls in operations
- Reconcile the account quarterly; the balance should equal the sum of all outstanding deposits
Violation #4: Failing to Pay or Itemize Interest
What landlords do: Return the deposit with no interest or deduct interest as an administrative fee.
Why it violates §7-108: Interest is earned by the bank and belongs to the tenant, not to you. Deducting it as a fee is theft of tenant property.
How to comply:
- Track the accrued interest in your deposit account (your bank will provide a year-end statement)
- Calculate interest owed to each tenant based on the time the deposit was held
- When returning the deposit, include a separate check or accounting for the interest
- Example: Deposit of $2,000 held for 12 months earning 0.5% interest = $10 interest owed
Lease Language Compliance Checklist
Before you sign a lease, use this checklist to ensure your security deposit language complies with §7-108:
| Requirement | Compliant Language | Red Flag |
|---|---|---|
| Deposit Amount Cap | "Security Deposit: $2,000 (one month's rent)" | "Security Deposit: $2,500" or listing multiple deposit types |
| Separate Fees | "First Month's Rent: $2,000. Last Month's Rent: $2,000. Security Deposit: $2,000." (clearly separated) | "Total Move-In Fees: $6,000 (includes security deposit, key deposit, pet fee)" |
| Account Holding | "Landlord will hold the security deposit in a separate, interest-bearing account in accordance with New York General Obligations Law §7-108." | "Deposit held at landlord's discretion" or no mention of account holding |
| Interest and Return | "Accrued interest will be remitted to tenant at lease end, minus lawful deductions." | "Interest will be retained by landlord" or no mention of interest |
| Deduction Limits | "Deductions only for unpaid rent, utilities, or damage beyond normal wear and tear, with itemization and receipts provided." | "Landlord may deduct for any maintenance or cleaning costs incurred" |
How to Handle Multi-Year Leases and Rent Increases
If a lease renews and rent increases, the security deposit cap still applies to the new rent amount — but you cannot retroactively increase the deposit already held.
Example:
- Year 1 lease: Rent $2,000, deposit $2,000
- Year 2 lease: Rent increases to $2,200
- Can you require an additional $200 deposit? No.
You are holding the original $2,000 deposit. If the new lease is a renewal (continuation), the deposit applies to the new rent amount and is compliant. If the new lease is a fresh lease, you may only collect $2,200 (the new rent amount). You do not collect an "additional" deposit.
If the tenant has been in the unit for years and the rent is now $3,000, the original $2,000 deposit was compliant at the time it was collected. You cannot now demand an additional $1,000 to match current rent.
New York City and Local Variations (2026 Update)
New York City does not have stricter local deposit caps — the state §7-108 limit of one month applies citywide. However, NYC has additional protections:
- Rent Stabilization (RSL §26-517): Rent-stabilized tenants in NYC have additional deposit protections; landlords must follow both §7-108 and RSL rules
- Landlord Registration: NYC requires landlords to register buildings with the Department of Housing Preservation and Development (HPD), and deposit violations trigger HPD enforcement
- Overcharge Statute of Limitations: Tenants can sue for overcharges within four years of lease termination in New York Supreme Court
Other New York municipalities (Buffalo, Rochester, Syracuse) follow the same §7-108 cap; no local override is permitted.
Practical Compliance Workflow for Self-Managing Landlords
At Lease Signing
- Calculate maximum deposit: One month's rent, no more
- Collect payment: Require deposit payment (check, ACH, or credit card) at signing or before move-in
- Document in lease: Include the security deposit amount and a statement that it is held under §7-108
Within 30 Days of Receipt
- Deposit funds: Transfer the deposit to your dedicated security deposit account (separate from operating funds)
- Prepare receipt: Generate the account notice with bank name, address, account identifier, and date
- Send notice: Mail or email the notice to the tenant; keep proof of delivery
During Tenancy
- Monitor account: Reconcile quarterly; balance should match total deposits outstanding
- Track interest: Note the interest accrued (your bank will report this annually)
- Do not withdraw: Leave the deposit account untouched except for returns or interest payments
At Move-Out
- Inspect unit: Document any damage beyond normal wear and tear with photos
- Itemize deductions: List only repairs or unpaid rent; normal wear and tear is not deductible
- Calculate interest: Add accrued interest to the amount to be returned
- Return deposit: Issue a check within 30 days with an itemized statement and supporting receipts for any deductions
For self-managers tracking multiple tenants, consider using LeaseBase lease operations tools to automate deposit tracking and generate compliant notices. The platform's compliance engine flags security deposit violations before they occur, reducing your exposure to treble damages claims.
Red Flags: When You Might Already Be Violating §7-108
Ask yourself these questions. If you answer "yes" to any, you may be in violation:
- Am I charging a separate "pet deposit" in addition to the security deposit?
- Am I holding tenant deposits in my personal checking account or business operating account?
- Have I not provided a written account notice to any tenant within 30 days of lease signing?
- Am I collecting "first month, last month, and security deposit" that totals more than three months' rent?
- Am I deducting cleaning costs or maintenance charges from the security deposit without itemizing or providing receipts?
- Am I retaining interest earned on the deposit instead of returning it to the tenant?
- Did I collect a deposit more than one month's rent amount?
If you answered "yes" to any of these, consult a New York landlord-tenant attorney immediately. The cost of legal advice is far lower than the cost of paying treble damages.
FAQ: New York Security Deposit Compliance
Q: Can I charge a non-refundable "administration fee" separate from the security deposit?
A: Possibly, but only if it is clearly labeled as a non-refundable fee (e.g., application fee, lease signing fee) and is charged separately from the security deposit. The non-refundable fee does not count toward the §7-108 deposit cap, but it must be disclosed upfront in plain language. Courts scrutinize non-refundable fees; if a fee is later deemed a deposit (because it is held to cover damage or loss), you risk liability. Best practice: avoid non-refundable deposits entirely and collect only refundable security deposits capped at one month's rent.
Q: I have a property in New York City. Are there additional rules beyond §7-108?
A: Yes. New York City's Department of Housing Preservation and Development (HPD) enforces §7-108 citywide and adds registration requirements. If your building is rent-stabilized under the Rent Stabilization Law (RSL), additional rules apply, including limits on increases and deposit handling rules. For NYC landlords: ensure your lease includes the standard NYC "Riders" (required statutory notices), register your building with HPD, and follow both §7-108 and RSL rules if applicable. The penalty for deposit violations in NYC can include violations issued by HPD and tenant litigation.
Q: The deposit was collected 5 years ago. A tenant is now suing for overcharge. Is there a statute of limitations?
A: Generally, yes. Tenants can sue within four years of lease termination for breach of the deposit holding requirement or overcharge. The four-year statute of limitations for contract and property claims applies. However, if you are still holding the tenant's deposit (e.g., the lease has not ended), the clock has not started. If the overcharge was systematic or if you failed to disclose the deposit account, claims may arise under fraud or statutory violation grounds with longer limitations periods.
Q: I collected a $2,500 security deposit on a $2,000 apartment. The tenant is threatening to sue. What should I do?
A: Stop and take immediate action. You owe the tenant $500 (the overcharge). The tenant can sue for $1,500 (triple the overcharge) plus attorney's fees. Your options: (1) Offer to return the $500 immediately and negotiate to avoid litigation, or (2) Contact a New York landlord-tenant attorney to discuss settlement. Do not ignore the threat. Treble damages claims are valid and frequently awarded.
Q: Can I adjust the security deposit amount if the tenant renews the lease and rent increases?
A: No. Once the deposit is collected, it applies to the original rent amount and any subsequent rent amounts under renewal leases. You cannot "top up" the deposit to match increased rent. If you are entering a new, separate lease (not a renewal), the deposit cap resets to one month's new rent, but you do not collect an additional deposit above the original one.
Conclusion: Compliance Starts With Your Lease
New York's one-month security deposit cap is one of the clearest landlord-tenant rules in the state — and one of the most frequently violated. The penalties are severe: triple damages plus attorney's fees for overcharges, and the tenant's burden of proof is minimal.
Compliance is straightforward if you follow these steps:
- Cap deposits at one month's rent. No exceptions, no add-ons.
- Place deposits in a separate, interest-bearing account. Commingling is a violation.
- Provide written account notice within 30 days. Include bank name, address, and account identifier.
- Return deposits with accrued interest within 30 days of move-out. Deduct only for unpaid rent and damage beyond normal wear and tear, and itemize with receipts.
- Keep records. Maintain deposit account statements, account notices sent, and move-out deduction documentation.
The cost of compliance is zero. The cost of non-compliance is a treble damages lawsuit you will lose.
For self-managers juggling multiple tenants and leases, LeaseBase's compliance engine validates lease language before signing and flags deposit handling violations in real time. You will know you are compliant before a tenant's attorney does.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Landlord-tenant law is complex and varies by jurisdiction. Consult a qualified New York attorney licensed to practice in your county for guidance specific to your property and situation. The information provided reflects the law as of October 2026 and may change. Verify all statutory references with current law before acting.