The new rent reforms have created some confusion over whether your landlord can keep your security deposit if you break a lease. A rule change says landlords must now "mitigate damages" for a tenant who wants to leave an apartment before the lease ends. That means they must do what they can to re-rent the unit and can't keep it empty while they go after a departing tenant for lost rent.
Ellen Davidson, a staff attorney at the Legal Aid Society in New York, thinks this means your security deposit is safe if you provide access to the unit and the landlord incurs no lost money because of damage or unpaid bills. She says the new law incentivizes landlords to find a new tenant.
“If the landlord was able to keep the security deposit every time the tenant broke the lease, it would undermine the law that requires landlords to try and rent the apartment,” she says.
However, Manhattan real estate attorney Steven Wagner of Wagner Berkow & Brandt (a Brick Underground sponsor) says it’s an “overstatement” to say your security deposit isn't vulnerable if you break your lease. He says the new law makes it less likely a tenant will be sued in these situations, but the damages could still include fees for repainting or paying a brokerage to re-rent the apartment.
Both agree, however, that tenants may still be on the hook for paying the rent until a tenant is found or for paying the difference if the apartment is re-rented at a lower price.
Wagner says, "The landlord is entitled to deduct itemized costs due to non-payment of rent" from the security deposit when a tenant leaves.
Davidson isn't so sure, saying "If the tenant's lease was through September and the tenant tells the landlord in May that as of July first the tenant is moving and pays the rent through June, the landlord doesn’t get to keep the security deposit."
Wagner says, ultimately, confusion over whether a security deposit is protected when you break your lease will have to be cleared up by the courts.
"The new statute was written quickly and there are things that will require interpretation, like the return of the security deposit. [The law] has strengthened tenants' rights significantly but there are plusses and minuses about it, not just in terms of interpretation but also things like the extreme limitations on [apartment and building] upgrades," he says.
Getting landlords and tenants in sync
The law says re-renting the apartment is something the landlord is required to do in good faith according to their resources and abilities. The wording of the new laws suggests small landlords will be given more leeway than larger institutional landlords but as a renter, you will also want to make every effort to help find a new eligible tenant to take over your lease.
That could include keeping the apartment clean, making sure the landlord's broker has access to the unit or actively spreading the word that you're looking for a new tenant to rent your unit.
The new rental price
According to the law, the landlord is required to rent the apartment "at fair market value or at the rate agreed to during the term of the tenancy, whichever is lower." Davidson says this doesn't cap the new rental price but relates to "what is the tenant on the hook for." So, in the event a landlord cannot rent the apartment out at a price equal to or above the departing tenant’s rent, the tenant is liable for damages.
Wagner says this is also aimed at keeping rents at a reasonable price point and preventing landlords aiming for a much higher rent and claiming they cannot re-rent the apartment. This would not "mitigate damages" for the outgoing tenant. Landlords "can no longer take their own sweet time, and if they want to get more money but can't, they will be responsible," says Wagner.
Who pays what?
Once the new lease is in effect, the old lease is automatically terminated. The landlord and tenant are equally liable when it comes to substantiating damages: So if a landlord has lost money as a result of the lease break, he will have to prove it in order to get reimbursement from the departing tenant. If the tenant feels they have been unfairly charged, the burden is on them to prove it.
Some tenants will likely accept having their security deposit withheld as the price of being released from their lease, especially since the security deposit is now capped at one month's rent. Adam Frisch, a leasing broker and managing principal at Lee & Associates Residential, says, "If you were to offer a tenant a choice between being sued [for a lost rental] or merely forfeiting the security deposit, I think it’s a fairly obvious choice."
Looking ahead, all this may be a moot point as landlords grapple with other changes that require them to return a security deposit within 14 days of the tenant's departure. Many landlords say that is nearly impossible to comply with, and some are moving to new 'deposit free' alternatives that require renters to pay a small monthly fee to a third party in lieu of paying a security deposit to a landlord.
Breaking a lease can be a difficult situation to navigate. If you are in this situation, you’d be well advised to be upfront with your landlord, do everything you can to help him or her re-rent the unit and accept that you may still face penalties.
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