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LANDLORDS BEWARE: Do Not Comingle Security Deposits
LANDLORDS BEWARE: Do Not Comingle Security Deposits
By: Chaim J. Jaffe
In 23 E. St. Mgt. Corp. v. 23 E. 39th St. Dev. LLC (2015 NY Slip Op 09605), the New York State Appellate Division, First Department, relied on Section 7-103 of the General Obligations Law in awarding Plaintiff-tenant an award of damages in the amount of $115,944.19. This amount represented the balance of the security deposit Defendant-landlord owed Plaintiff-tenant after application of the balance thereof to the unpaid rents which Plaintiff-tenant conceded were due and owing.
The Court’s ruling is significant insofar as it serves as a reminder to all landlords and tenants that: 1) security deposits must be kept in segregated accounts and not comingled with a landlord’s other funds; 2) failure to comply with General Obligations Law Section 7-103 gives rise to an action in conversion insofar as a landlord is considered to be a trustee with respect to those funds; 3) a landlord who violates General Obligations Law Section 7-103 cannot utilize the security deposit as an offset against unpaid rents; and 4) a tenant may apply its security deposit as an offset against unpaid rents.
Click here for a full copy of the Court’s decision.
