Like any other contract, lease or rental agreements are usually supported by the exchange of consideration. By that we mean, in return for a landlord's grant of exclusive possession and control of delineated space (whether it be commercial or residential in nature), a tenant typically agrees to pay a sum of money in monthly installments, commonly known as "rent." In addition to that base charge, leases will typically authorize the landlord's recovery of other fees and charges (like attorneys' fees and late charges).
A "security deposit," on the other hand, is a fund of money (or other consideration) advanced to the owner to ensure the tenant's performance of the terms and conditions of the parties' agreement. These proceeds are viewed by New York law as "trust moneys" which should be maintained in a segregated manner and not "commingled" with the landlord's monies. Most lease agreements typically contain a security-deposit requirement.
As a recent appellate decision demonstrates, since "security deposits" are not "rent," they are not recoverable within a nonpayment case. Attempting to circumvent this prohibition could adversely impact the outcome of a case. By way of example, in Graham Realty Assoc. LLC v. Peller the landlord and tenant entered into a stipulation of settlement which provided for a final judgment of possession and money judgment in the amount of $2,668.75. Since the total inappropriately included a security deposit of $793.75, and a carbon monoxide detector fee of $25, the tenant moved to set aside the agreement. A Housing Court Judge denied the request, but on appeal the Appellate Term, 2nd and 11th Judicial Districts, reversed on the following grounds:
Inasmuch as a security deposit is not "rent"...and, in the context of this rent-stabilized tenancy, the carbon monoxide detector fee cannot be considered "rent"...the court did not have subject matter jurisdiction over these items...and could not include them in the final judgment. Accordingly, tenant's motion to vacate the stipulation and final judgment is granted.While we have the highest regard for the Appellate Term, we have some qualms with the outcome of this appeal. We particularly take issue with the court's use of the phrase "subject matter jurisdiction" in this particular instance. It is unclear to us how the inclusion of unauthorized charges impacted the court's constitutional and statutory powers to adjudicate the dispute. Since litigants lack the ability to grant or deprive a court of "subject matter jurisdiction," we do not understand how the parties' agreement divested the court of its ability to mete out justice or to resolve the matter in a fair and impartial manner. Additionally, why vacate the agreement in its entirety? Had the remaining charges been paid? Unfortunately, the decision affords little insight as to why a carve-out of the "authorized" charges did not survive appellate muster.
For a copy of the Appellate Term's decision in the Graham Realty Assoc. LLC v. Peller case, please click on the following link: