Landlord-Tenant Lessons from Soloman v. NessSeptember 17, 2014 by Graig F. Zappia, Esq
Security Deposits and the Landlord’s Responsibility
Under New York’s General Obligations Law, a security deposit with respect to the use or rental of real property “shall continue to be the money of the person making such deposit…and shall be held in trust by the person with whom such deposit or advance shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same.” General Obligations Law 7-103(1).
In Soloman v. Ness, for example, the landlord failed to deposit the funds “in trust” and went a step further–having the tenant sign off on a clause contained within the lease that commingling the funds was acceptable. Oftentimes, landlords fail to realize this obligation (or choose to ignore it) and simply deposit a tenant’s security deposit in the landlord’s personal account. That, unfortunately, can lead to many unexpected results.
The landlord, however, ran afoul with New York law under two provisions of the General Obligations Law:
- the provision requiring the security deposit to be held in trust and
- the provision stating requiring a waiver of this provision by the tenant is void.
The lessons are relatively simple from this case regarding security deposits. Landlords need only to set up a separate account for each rental property specifically for holding tenant security deposits. Not a difficult task and can be done with one trip to your local bank. Your accountant and your lawyer will be happy with that decision.
Actions May Terminate the Lease Despite its Terms
Soloman v. Ness also instructs landlords and tenants alike on how actions will speak louder than words contained within a lease and may result in the termination of a lease months in advance.
The landlord and tenant in the Soloman case both took affirmative steps that ultimately terminated the lease by operation of law, even though the lease term was valid on its face through August 2012–some ten months later.
The facts read as follows:
Within two months of moving in, the tenants vacated the house and returned the keys to the landlord, who in turn, placed the house on the market and did not demand payment of rent from the tenants until late November 2011.
The tenants were able to raise an issue of fact as to whether the parties both acted inconsistently with the terms of the lease that the premises were in effect surrendered by operation of the law, terminating the lease prior to rent becoming due on October 1, 2011.
The Court agreed that this may be the case and allowed the case to move forward.
Again, the lessons are simple for landlords. Any time a tenant is late with rent, a demand should be sent immediately once the date has passed for receipt. Failing to demand payment, even a month or so later, may foreclose your ability to collect the rent down the road, especially where you turn your attention to putting the property on the market or accept the keys from the tenant, as was the case in the Soloman matter.
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