I was asked by an attorney in Chicago if there was a penalty to a landlord if they commingle their money with the security deposit of the tenant. In Chicago, I am informed that its 2x the security deposit plus reasonable attorneys fees. Not in NY. Here the tenant only has an immediate strict liability right to recover their security deposit regardless of the status of the lease. Meaning, even if the tenant already breached the lease, if the landlord had commingled the tenant's security deposit, the tenant can recover. Yet, I like Chicago's law better. Do you think we should add teeth to our law and provide for punitive (punishment) damages if landlords commingle the money?
Here is a blurb from a case on point:
General Obligations Law § 7-103(1) provides that a security deposit “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 ... shall be made and shall not be mingled with the personal moneys or become an asset of the person receiving the same.” While the statute does not provide any specific penalty or sanction for a landlord's commingling of a security deposit with personal funds, it has been held that the commingling of a security deposit with a landlord's personal funds is a conversion, which entitles a tenant to an immediate right of recovery ( see LeRoy v. Sayers, 217 A.D.2d 63 ; Sommers v. Timely Toys, 209 F.2d 342  ).