Rules For Accepting Pre-Paid Rent Or Maintenance – Such Funds MUST Be Segregated!

Written By: Beatrice Lesser


There are occasions when a tenant, including a tenant/shareholder of a cooperative or a tenant of a condo unit owner, pre-pays rent or maintenance. This can happen in the course of signing a lease for a rental where the tenant pays first and last month(s) rent at the time of signing. This can happen where a landlord requires that the tenant pre-pay a certain amount of rent. With short-term rentals, such as for a beach house, the tenant may be required to pay all of the rent at the time of signing. Sometimes a tenant will be traveling and wants to pre-pay all the rent/maintenance that will become due while they are away. 
In all situations, whether the landlord owns one or 1,000 apartments, New York’s General Obligations Law requires that security deposits and pre-paid rent be deposited into a segregated account and cannot be deposited into an account that also contains funds from any other source. If the landlord owns one apartment and has only one checking or savings account, he or she must open a separate account where all pre-paid rent and the security deposit are deposited. 
If the landlord does not segregate the funds, the tenant has the right to demand a return of all of the funds. This is true even if the lease has already expired and the tenant has moved out. 
Where a shareholder prepays rent, he/she is not doing the landlord a favor – because then the managing agent must move the funds into a separate account and pay the monthly charges one month at a time, to the landlord’s operating account. 

about the authors

Beatrice Lesser


For more than 20 years, Ms. Lesser has been counsel to numerous co-ops and condos, individuals and businesses, landlords and tenants, and homeowners associations. Ms. Lesser has been advising them regarding all aspects of litigation in real estate law, contracts, leases, discrimination, restrictive covenants, Loft Law, and other related issues.

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