Security deposits: which statement accurately reflects how security deposits are handled in New York real property practice?

• A. Security deposits may be commingled with the landlord's personal funds.
• B. If the deposit is in an interest-bearing account, the landlord may retain 5% for expenses, and the balance goes to the tenant.
• C. In buildings containing six or more family dwelling units, the landlord must deposit the security in an interest-bearing account.
• D. When title to the leased property is transferred, the landlord may keep the deposits.

Answer: (C)

In New York, security deposits for residential leases in buildings with six or more dwelling units must be placed in an interest-bearing account. The tenant is entitled to the interest earned, and the funds must be kept separate from the landlord’s own funds. This rule protects tenants and ensures the security deposit stays secure and productive for the duration of the lease. The other statements aren’t accurate: deposits must not be commingled with the landlord’s funds; if title to the property transfers, the new owner takes on the deposit obligations rather than keeping the deposits themselves; and there isn’t a blanket 5% fixed deduction for the landlord—the interest is for the tenant, subject to reasonable administrative charges, not a fixed split.