the escrow money for rent. The entire escrow account now having been entirely drawn down,
petitioner seeks an order requiring respondents to replenish it, and respondents seek an order for
their return.
B. The Law
An escrow
account is a security deposit. If money deposited with a landlord serves as a quasi-insurance
policy to ensure compliance with the terms of the lease, the money represents a security deposit,
not rent. Even though petitioner and Shearman agreed that the money in the escrow fund would
be deemed "additional rent," the escrow account is a security deposit, and therefore is not rent.
As two authors have explained, "[a] 'security deposit' is consideration advanced on a lease or
license agreement and is held by the lessor or licensor to ensure an occupant's full performance of
the terms and conditions of the underlying contract." (Daniel Finkelstein and Lucas A. Ferrara,
Landlord and Tenant Practice in New York § 7:2, at 7:4 [2006 ed.].) GOL § 7-103 (1)
provides that a security deposit made by a tenant at a landlord's request continues to be the
tenant's property and shall be held in trust without being commingled with the landlord's personal
assets. Thus, in Peterson v Oklahoma City Hous. Auth. (545 F2d 1270, 1274 [10th Cir
1976]), the court found that "if the deposit is security for the performance by each tenant of the
conditions of his lease, kept with other such deposits in a separate account, and is returnable to
him on termination of the tenancy if the conditions of the lease have been fulfilled, it is a security
deposit."
The escrow fund is a security deposit because, under the escrow agreement, the cooperative
would use the funds to ensure compliance with the terms of the proprietary lease, would keep the