Comptroller Issues Report on Security Deposits, Recommends Reforms
City Comptroller Scott Stringer recently issued a report looking at the role security deposits play in the city’s housing market and outlines proposed statewide legislation that would help renters have access to apartments. According to the report, with minimal savings and rising rents among potential renters, the upfront costs of a security deposit, along with fees for credit reports and background checks, can make moving to or within New York City a challenge, particularly for low-income renters and renters of color. The report states that the median advertised monthly rent of a New York City apartment is $2,695. And assuming a security deposit equal to first month’s rent, the typical family of four would have to pay 6 percent of their annual income to cover the upfront costs of moving in. As a result, Stringer recommends the following reforms:
Capping security deposits at one month’s rent. Stringer recommends that New York State should cap security deposits at one month’s rent for all one-year leases, as Alabama, North Dakota, Massachusetts, New Hampshire, South Dakota, Kansas, Nebraska, Rhode Island, Delaware, and Hawaii have already done. Security deposits are already capped for rent-regulated units in New York; this proposal would simply expand that ceiling to all units within the city.
Reducing upfront costs and expanding tenant choices. Stringer says city and state legislators should empower tenants to manage their security deposit obligations with a range of opt-in strategies, including:
· Payment plans: He proposes an option to pay security deposits in installments rather than covering the full burden all at once. In Seattle, for instance, renters are allowed to pay in six installments, so that a tenant could add $300 to her first six rental payments, rather than paying $1,800 up-front.
· Security insurance rather than security deposits: A number of New York companies allow renters to pay a small monthly or one-time fee in exchange for guaranteeing their security deposit with landlords. Stringer points out that while tenants won’t get this money back, as they would with a traditional deposit, paying $10 per month to insure your apartment against damages rather than an $1,800 security deposit is a significant reduction in the upfront costs of moving and can be a desirable trade-off.
· One month’s rent: If a tenant prefers to pay a full month’s security deposit with a single check, that option will be preserved and protected.
Getting back the security deposit. The report says security deposits are withheld from tenants too often at the end of a lease for arbitrary, unexplained, or fraudulent reasons. To combat bad actors and ensure fairer outcomes, the report proposes a tenant protection system where security deposits are held by a third-party custodian and arbiter rather than the landlord.
Under this model, if a landlord wishes to withhold money for damages, cleaning fees, or unpaid rent at the end of a lease, that landlord must come to an agreement with the tenant. In instances where there’s a dispute over damages or the cost of repairs, the landlord and tenant can utilize the dispute resolution service offered by the third-party organizations that hold deposits. These services are free but require both parties to agree to be bound by the decision.