Katelynn Bishop, Plaintiff, v. NY LLC (2026)

This matter came on to be heard on the court's small claims docket. The Uniform Justice Court Act Section 1804 sets forth the standard by which the Town or Village Justice must conduct a small claims hearing. That section states in part that

"The court shall conduct hearings upon small claims in such manner as to do substantial justice between the parties according to the rules of substantive law and shall not be bound by statutory provisions or rules of practice, procedure, pleading or evidence, except statutory provisions relating to privileged communications and personal transactions or communications with a decedent or person with a mental illness."

In this case a request for Small Claims Action was filed with the court by the plaintiff which stated as follows:

"I had submitted a rental application for this complex and was told in order to proceed with the application, they needed to charge a $500.00 hold deposit. I never ended up signing a lease, and they refuse to refund me due their 72 hour policy."

The plaintiff testified on her own behalf. She presented no other witnesses. Her testimony was that in October of 2025 she was interested in renting an apartment from the defendant. As a result, she completed an application to be given a lease agreement. Before completing the application she received a document from the apartment company that indicated that there was a non-refundable application fee of $11.50. However, the plaintiff was further required to pay a reservation deposit of $500.00. In fact, in the same document it stated that "In the event of a cancellation within 72 hours or a denial you will receive a refund for the $500.00 Reservation Deposit within 30 days." According to the defense witness, if the plaintiff's lease application was accepted by the apartment complex the $500.00 would be credited against the first month's rent. However, the plaintiff was told that she was not going to be able view the specific apartment that she was going to lease until one day before the lease term was to commence. The defendant presented one witness, namely Jax Faulkner, an employee of the apartment complex. That defense witness testified that the plaintiff would have been able to inspect an exact duplicate of the apartment in question elsewhere in the said apartment complex. That was not acceptable to the plaintiff, so she advised the apartment company that she was withdrawing her application. In so doing she demanded that the $500.00 reservation deposit be returned to her. That request was denied. The one defense witness testified that the said $500.00 was to cover the cost of having to re-advertise the availability of the apartment for rent. However, other than a general and broad statement as to the expense associated with re-advertising the apartment on its website, no documentation or specific credible testimony was presented to the court relative to said purported expenses. Plaintiff argues that Section 238-a of the Real Property Law makes it illegal to require a Reservation Deposit.

Issues Presented

Is the defendant's non-refundable reservation deposit an un-enforceable penalty or an enforceable liquidated damage clause?

Is the defendant's non-refundable reservation deposit in violation of Real Property Law Section 238-a (1) (a)?

Legal Analysis.

Liquidated damages. It has long been the common law that

" A fixed sum which bears no relationship to the nonbreacher's anticipated or actual loss is nothing more than an unenforceable penalty. Jacobs v. Citibank, N.A., 61 NY2d 869, 474 N.Y.S.2d 464, 462 N.E.2d 1182 (1984). 'Since equity abhors forfeitures, the court will examine the amount stated in the contract as liquidated damages to insure that it is not disproportionate to the damages actually arising from the breach or designed to coerce the performance of a party.' Fifty States Mgt. Corp. v. Pioneer Auto Parts, Inc., 46 NY2d 573, 577, 415 N.Y.S.2d 800, 389 N.E.2d 113 (1979); see, also, Wirth & Hamid Fair Booking v. Wirth, 265 NY 214, 223, 192 N.E. 297 (1934)." (Chein v. Tova Realty, 151 Misc 2d 710,713, 573 N.Y.S.2d 855, 857-858 [1991])

That same principal is codified in UCC § 2-718 (1) which states

"Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is void as a penalty."

The defendant's reservation deposit of $500.00 has all the earmarks of a void penalty rather than that of a liquidated damage provision directly related to an out of pocket expense that would be incurred when the plaintiff did not follow through with entering a lease agreement. To put it another way, when one considers damages or punishment, to quote Thomas Jefferson, "The hole and the patch should be commensurate. The patch should fit the hole." (See Vesper, Uncle Anthony's Unabridged Analogies, at page 299 [Third Edition])

Real Property Law § 238-a. Section 238-a (1) (a) of the Real Property Law states in pertinent part as follows;

"In relation to a residential dwelling unit: Except in instances where statutes or regulations provide for a payment, fee or charge, no landlord, lessor, sub-lessor or grantor may demand any payment, fee, or charge for the processing, review or acceptance of an application, or demand any other payment, fee or charge before or at the beginning of the tenancy, except background checks and credit checks as provided by paragraph (b) of this subdivision".¹

The defendant's reservation deposit, even if it is refundable if the lease is not signed, would be in violation of RPL § 238-a (1) (a).Under the circumstances herein, the fact that the reservation deposit is used to reserve a particular apartment for the potential tenant during the application process, does not excuse a landlord from the prohibitions of this section of the Real Property Law. The truth is that the potential tenants application would not be processed without the said deposit. That fact alone violates the prohibition against requiring a fee to process, review or accept an application to enter a lease for a residential dwelling unit.

Conclusion.

For all the reasons set out herein, the court finds that the defendant is liable to the plaintiff for $500.00. Therefore, Judgment shall enter in favor of the plaintiff and against the defendant in that sum, together with the filing fee of $10.00, paid by the plaintiff for a total of $510.00.² This constitutes the decision and order of this court.

Dated: August 10, 2026

Webster, New York

Hon. Thomas J. DiSalvo

Webster Town Justice

FOOTNOTES

1.   (The reference sub-section (b) refers to fees associated with background and credit checks. That provision requires that, the cost of same cannot exceed the actual cost of said check or twenty dollars which ever is less.)

2.   (See UJCA § 1401 which states "Within the limits of its jurisdiction as defined in this act, the court shall have power to render any judgment that the supreme court might render in a like case. The form of the judgment shall be as provided in the rules. The judgment in an action may be prepared by the attorney for any party to the action, except that if a party does not appear by attorney the judgment shall be prepared by the clerk upon request of such party.)

Thomas J. DiSalvo, J.