Rules About Holding Tenant Security Deposits

A common mistake some new landlords make is to drop security deposits collected from tenants into their own personal chequing accounts. However, it is not a good idea to have money belonging to tenants mixed up with your own, unless and until it is being applied to cover unpaid rent or damage beyond normal wear and tear.

All states have strict rules covering security deposits, especially if you are a landlord in the Big Apple, which means you could be asking for trouble, since New York rules are some of the strictest in the entire country. New York state laws require landlords to hold security deposits in trust for their tenants. In other words, it means keeping tenant money safely segregated from your personal funds. The best thing to do is to open another bank account for keeping your tenants security deposits in. All you require is one separate account and not one for each tenant’s security deposit.

Don’t make the mistake of mixing tenant security deposit money with your own personal or business funds, as you run the risk of forfeiting the deposits. As well, desist from borrowing a tenant’s security deposit when you are desperately in need of funds, including pledging them, in order to qualify for the loan.

New York landlords should also be aware of a couple of rules governing security deposits, which are dependent on the size of their rental property, including whether it is rent regulated or not.

1. Security deposits collected from tenants of rent-stabilised and rent-controlled units must be deposited in a New York bank.
2. If, your building has six or more units, then again a New York bank account is required for keeping the tenants security deposits in. The same rule applies even if you own less than six units in the building, as the size of the building is the determining factor not the number of units.

That apart, landlords should make themselves cognisant with all rules and regulations before drafting tenancy leases or rental agreements. They must also take all necessary precautions, such as, tenant screenings, background checks on prospective tenants, including making certain all rental lease clauses are adhered to, as insurance for a litigation free landlord / tenant relationship. A simple click of the mouse and any landlord or property manager can visit www.e-renter.com for their tenant screening and background check services. www.e-renter.com, the best tenant screening agency in America!