14 Day Deadline to Return Security Deposits — New Rent Laws in New York
There are numerous notable highlights of the new rent laws. Restrictions on major capital improvements will prevent landlords from raising rents in order to complete building repairs. The new limitations on landlords’ ability to raise rents on, and deregulate vacant units will disincentivize evictions.
One part which has received less attention until now, were several new regulations that have to do with security deposits. Landlords can no longer charge more than one month’s rent as a security deposit, and new measures have been added to help tenants get their deposits back after leaving an apartment. Also, landlords now have 14 days after the tenant has vacated the premises to provide the tenant with itemized statement of security deposit deductions (damages beyond wear & tear / unpaid rent, unpaid utilities), if any. Additionally, landlords must return (the remainder of) the deposit to the tenant within 14 days after the tenant has vacated the premises, otherwise landlord forfeits the right to retain any portion of the security deposit.
New York is not the only state with intense regulations on security deposits. There are 10 states that limit the security deposit amount to the equivalent of one month’s rent (for unfurnished apartments on a one-year lease). Among them are Hawaii, District of Columbia, Rhode Island, Massachusetts, and Kansas. Renters in Montana enjoy the quickest turnaround times- as they receive their security deposits back within 10 days. And like New York– landlords in Hawaii, South Dakota, Nebraska, Arizona, and Vermont are required to return security deposits within 14 days. Once the deadline passes, “…the landlord shall forfeit any right to retain any portion of the deposit.” There are currently 21 states in which security deposits are to be kept in separate bank accounts for each tenant, and eight states in which deposits are required to be returned within 14 days or less.
Needless to say, the management of security deposits has more than ever become a burden for landlords and property managers alike. The one piece of good news I can deliver is that Obligo might be able help.
Obligo is a platform that eliminates the burden of security deposits for landlords, management companies, and their tenants. In properties where Obligo is enabled, tenants don’t pay a security deposit. Rather, renters provide a payment pre-authorization to their landlord, through Obligo’s platform. In the event of damages or missed rent, landlords can charge the tenant’s bank account up to the preauthorized cap, just as if there had been a security deposit. The beauty of this system is that it doesn’t only secure the landlord, but it also maintains the same level of tenant accountability. Obligo guarantees payment on claims, and we must not forget — the service is very cheap when compared to insurance-based models (Obligo is based on credit).
Today, Obligo is the only deposit alternative solution that can encompass an entire property at once, achieving a ‘deposit-free property’. This completely eliminates the burden of collecting and returning security deposits. When tenants move in, they simply get a link and follow the instructions to sign up and connect their bank accounts. It’s that simple.
When you don’t take deposits, you don’t have to do any of the overhead. No paper checks, no segregated bank accounts, no interest payments, no scurrying to return deposits in 14 days, and no compliance to worry about. Not to mention that deposit-free properties are also more attractive to renters: accelerating lease-up, encouraging renewals, reducing vacancy and driving NOI.
Not surprisingly, at Obligo we have been approached in the last couple of weeks by many current and prospective partners who want to use Obligo in as a compliance strategy.
The bold changes in the package of bills of the new NY rent law, such as those that impose strict regulations on security deposits, prevent landlords from using from calls “for more oversight by the Division of Housing and Community.” As a result, two of the city’s largest landlord organizations (Rent Stabilization Association and the Community Housing) Improvement Program) announced plans to prepare a lawsuit against NY state and launch a constitutional challenge to the rent regulation package by mid-July. With all this aside- there are ways that Obligo can help landlords and property management companies around the new law requirements around security deposits, and that is through our security deposit alternative solution. It helps return deposits on time, and make quick deposit deductions if and when necessary. Due to the ease of usage, Obligo is already available in roughly 20,000 units across New York City.
At the end of the day, it all comes down to landlord-tenant credit risk management, and going deposit-free is the best way to start.