Can a New York county pass a local law requiring small residential landlords (fewer than six units) to put tenant security deposits in interest-bearing accounts, even though state law only requires that of larger landlords?
Plain-English summary
State law (General Obligations Law § 7-103) tells residential landlords with six or more units they must hold tenant security deposits in interest-bearing accounts; the tenant gets the interest, the landlord keeps 1% as an administrative fee. Smaller landlords (fewer than six units) face no such requirement. Oneida County wanted to extend the interest-bearing-account rule to all landlords in the county, regardless of building size, citing its home-rule police power.
The AG's office said no. Although the proposed law would fit within the home-rule grant in Municipal Home Rule Law § 10(1)(ii)(a)(12), home-rule authority is bounded by § 10(1)(ii)'s prohibition on local laws inconsistent with a general state law. General Obligations Law § 7-103(2-a) is a general law (it applies alike to all counties, the test in Municipal Home Rule Law § 2(5)). And the legislative history shows the Legislature deliberately left small residential landlords off the hook.
Bills reintroduced in 1964, 1966, 1967, and 1969 (at the AG's own urging) proposed an across-the-board rule covering all residential and commercial landlords. The 1970 enactment (L. 1970, ch. 1009) cut that scope down to large residential landlords (six or more units). The Legislature's own materials and the Governor's approval memo cited the disproportionate clerical burden on small landlords (where interest income would often be less than processing costs) and the contractual use commercial tenants have to negotiate equivalent terms on their own.
So § 7-103(2-a) is not just a floor (above which counties could expand the requirement); the AG read it as a balance the Legislature deliberately struck. A county-level expansion would tip that balance and conflict with the general law.
Currency note
This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
The Housing Stability and Tenant Protection Act of 2019 reshaped New York's landlord-tenant statutory framework, including new caps on security deposits (one month) and requirements about the timing of return. A reader looking at security-deposit law in 2026 should start with current Real Property Law § 235-e and General Obligations Law § 7-108, not with this 2014 opinion's framing.
Historical context
What the opinion meant for counties
In 2014, a county had no path to expand the interest-bearing-account requirement beyond what § 7-103(2-a) covered. Localities that wanted to require small-landlord protections for tenants had to rely on contract, voluntary practices, or push for legislative change at Albany, not for local rule-making.
Why the legislative history matters
This opinion is a textbook case of using legislative history to defeat a home-rule expansion. The general-law preemption analysis is normally about whether the state has occupied the field. Here, the AG goes further: the Legislature considered a broader rule and rejected it. That rejection is part of the law's content, and a local government cannot un-do that legislative decision through home rule.
What the opinion meant for tenants
Tenants in small buildings (fewer than six units) had no statutory entitlement to interest on their security deposits. They could of course negotiate for it, and some leases provided for it contractually. But the protection of state law applied only when the landlord operated a building with six or more units.
Common questions
Q: What's the rule for landlords with six or more residential units?
A: Under General Obligations Law § 7-103(2-a), the security deposit must be held in an interest-bearing account in New York. The interest belongs to the tenant; the landlord may keep up to 1% per year as a fee for administration.
Q: What about commercial landlords?
A: They are not required to use an interest-bearing account, but if they choose to, they may keep up to 1% as an administrative fee. The opinion describes this as a contract-driven space, where commercial tenants typically negotiate for interest if the deposit is large enough to make it worthwhile.
Q: What is "general law" preemption?
A: A state statute that "in terms and in effect applies alike to all counties or all counties other than those in New York City" is a general law. Municipal Home Rule Law § 2(5). Local laws inconsistent with general laws are forbidden by Municipal Home Rule Law § 10(1)(ii). General Obligations Law § 7-103(2-a) is a general law because it applies the same way in every county.
Q: Could the Legislature change this rule?
A: Yes, and it has. The Housing Stability and Tenant Protection Act of 2019 made significant changes to the security-deposit framework (new caps, timing rules). The opinion's specific rule about interest-bearing accounts has to be read against current statutes, not the 2014 framework.
Q: What's the home-rule basis the county was relying on?
A: Municipal Home Rule Law § 10(1)(ii)(a)(12) gives counties power to legislate on the protection, safety, health, and welfare of persons or property and the regulation of occupations or businesses. The proposed law fit that grant; it just ran into the inconsistency-with-general-law limit.
Background and statutory framework
General Obligations Law § 7-103 governs residential security deposits in New York. Subsection (2-a), added in 1970, requires landlords of buildings with six or more residential units to hold security deposits in interest-bearing accounts. Subsection (2) sets the 1% administrative-fee rule for any landlord (residential or commercial) who chooses to use an interest-bearing account.
The legislative history cited in the opinion includes 1964 N.Y. Senate Bill S.1221; 1966 N.Y. Senate Bill S.354; 1967 Senate Bill S.402-A; 1969 Senate Bill S.757; the enactment at L. 1970, ch. 1009 (May 20, 1970); the Governor's approval memo at 1970 N.Y.S. State Legislative Annual 538; and three N.Y. County Lawyers Association Reports (1964 No. 134; 1965 No. 255; 1969 No. 119) addressing the trade-offs the Legislature considered.
For the home-rule preemption framework: Municipal Home Rule Law § 10(1)(ii)(a)(12) (police-power grant), § 10(1)(ii) (general-law inconsistency limit), and § 2(5) (definition of general law) are the operative provisions. The conclusion follows from straight application: § 7-103(2-a) is a general law whose terms (six-or-more units) reflect a deliberate legislative balance, and a county-level extension to smaller landlords disturbs that balance.
Citations and references
Statutes:
- N.Y. General Obligations Law § 7-103, § 7-103(2), § 7-103(2-a)
- N.Y. Municipal Home Rule Law § 2(5) (general law definition); § 10(1)(ii), § 10(1)(ii)(a)(12) (home-rule grant and limit)
- L. 1970, ch. 1009 (1970 N.Y. Laws 3443, 3444) (origin of § 7-103(2-a))
Source
- Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
- Original PDF: https://ag.ny.gov/sites/default/files/opinions/2014-2_pw.pdf
Original opinion text
General Obligations Law §§ 7-103, 7-103(2), 7-103(2-a); Municipal Home Rule Law §§ 2(5), 10(1)(ii), 10(1)(ii)(a)(12); Session Laws 1970 Ch 1009
A county is not authorized to adopt a local law requiring that certain residential landlords deposit security payments into an interest bearing account.
September 3, 2014
Gregory J. Amoroso
County Attorney
Oneida County
Oneida County Office Building
800 Park Avenue
Utica, New York 13501-2975
Informal Opinion
No. 2014-2
Dear Mr. Amoroso:
You have requested an opinion relating to the County's authority to adopt a local law governing rental security deposits. State law requires that money paid as security to rent an apartment in a building that contains six or more family dwelling units be deposited in an interest-bearing account in New York. General Obligations Law § 7-103(2-a). The person making the deposit (i.e., the landlord) may keep 1% of the annual interest earned on the deposit to cover administrative expenses, and the remainder of the interest earned belongs to the person who paid the security deposit (i.e., the tenant). Id. § 7-103(2). You have asked whether the County is authorized to adopt a local law requiring that a security payment made to rent an apartment in a building that contains fewer than six family dwelling units also be deposited in an interest-bearing account. As explained below, we are of the opinion that the County is not so authorized.
As an initial matter, the proposed local law appears to fall within the County's home rule authority. Pursuant to Municipal Home Rule Law § 10(1)(ii)(a)(12), the County may adopt a local law relating to the protection, safety, health and welfare of persons or property within the County and to the regulation of occupations or businesses (its "police power"). A local law requiring that a landlord place a security deposit in an interest-bearing account, with most of the interest to accrue to the tenant, appears to come within this grant of authority.
This grant of authority is not unlimited. One limitation is that the County cannot adopt a local law that is inconsistent with a general law. Municipal Home Rule Law § 10(1)(ii). A general law, for home rule purposes and as relevant here, is a state statute that in terms and in effect applies alike to all counties or all counties other than those in New York City. Municipal Home Rule Law § 2(5). General Obligations Law § 7-103(2-a) applies alike to all counties in New York and is a general law. Thus the County cannot adopt its proposed local law if it would be inconsistent with section 7-103(2-a). With respect to residential security deposits and interest-bearing accounts, we believe that the proposed local law would be inconsistent with the State's general law.
General Obligations Law § 7-103(2-a) mandates that a landlord of six or more residential units place security deposits on those units in an interest-bearing account. As compensation for the administrative costs incurred by doing so, the landlord is entitled to keep up to 1% of the annual interest earned on the deposit. No other landlord, residential or commercial, is required to place a deposit in an interest-bearing account, although if one does, he or she also is entitled to up to 1% of the annual interest earned on the deposit to cover administrative expenses. General Obligations Law § 7-103(2).
The legislative history to this portion of section 7-103 makes clear that the Legislature intended to exempt landlords of fewer than six residential units ("small residential landlords") from the requirement that security deposits be placed in an interest-bearing account. For several years, legislative bills that would have required all landlords, commercial and residential of all sizes, to place a security deposit in an interest-bearing account, were introduced at the request of the Attorney General. See, e.g., 1964 N.Y. Senate Bill S.1221; 1966 N.Y. Senate Bill S.354; 1967 Senate Bill S.402-A; 1969 Senate Bill S.757. Ultimately, however, the Legislature enacted an amended version that limited the mandate to residential landlords of six or more units ("large residential landlords"). Act of May 20, 1970, ch. 1009, 1970 N.Y. Laws 3443, 3444; see also Governor's Approval Memo, reprinted in 1970 N.Y.S. State Legislative Annual 538. By requiring only large residential landlords to place a security deposit in an interest-bearing account, the Legislature apparently recognized both the clerical burden the requirement would place on small residential landlords and the negotiating power that commercial tenants wield to include a similar favorable provision in a property contract. See N.Y County Lawyers Ass'n, 1969 Report No. 119 (1969 S. 757) (clerical burden imposed on landlords in cases of small security deposits would exceed interest accruing on deposit); N. Y. County Lawyers Ass'n, 1964 Report No. 134 (1964 S.2397 et al.) (parties contract for deposit in interest-bearing account or deposit of interest-bearing securities when substantial deposits are involved); N.Y. County Lawyers Ass'n, 1965 Report No. 255 (1965 S.2504 et al.) (payment of interest on security deposits is matter of contract between landlord and tenant).
With respect to residential landlords, the enactment of subdivision 2-a of section 7-103 reflects a legislative decision as to the proper balance between a residential tenant's interest in maximizing the earning power of his or her security deposit and a landlord's interest in minimizing administrative expenses. The local law proposed by the County would impose administrative costs on small residential landlords who the Legislature determined should not have to bear such costs and thus would be inconsistent with the general state law in this area. We therefore are of the opinion that the County cannot adopt the proposed local law.
The Attorney General issues formal opinions only to officers and departments of state government. Thus, this is an informal opinion rendered to assist you in advising the municipality you represent.
Very truly yours,
KATHRYN SHEINGOLD
Assistant Solicitor General
in Charge of Opinions