Security Deposit & Letters of Credit: NYC Office Leasing, Explained

Q: How many months is normal?

Established companies see lower asks; early-stage teams can see substantially more. The strongest lever is a burn-down schedule, which most landlords will discuss and few volunteer.

A security deposit is the collateral a New York office landlord holds against the lease, typically several months of rent, and the ask climbs for young companies without years of financials. Larger deals often post a letter of credit instead of cash, a bank instrument the landlord can draw on after a default. Both are negotiable on the amount and on a burn-down schedule that returns part of the security after each year of clean payment history.

Updated 2026-10-01 · NYC leasing glossary · Nomad Group

Worth knowing

Security terms vary lease to lease and this page describes market practice, not legal advice; have counsel read the draw, replenishment, and burn-down conditions on the specific lease before anyone signs.

How security works inside a New York office lease

The security article sets the amount, the form, the conditions for a draw, and the timing of the return, and each is drafted in the landlord's favor until someone pushes back. Cash simply sits with the landlord for the term. A letter of credit comes from the tenant's bank instead, which keeps the money on the tenant's side of the ledger, as most CFOs prefer.

Sizing is a credit decision, not a formula. Years of financials bring the ask down, while a young company on a recent raise sees more, because the landlord is underwriting the risk that the rent stream stops. The quoted number sounds like building policy. It is an opening position, and we treat it as one.

Commercial security lives entirely in the lease, so the draw triggers, any replenishment obligation, and what happens if the building sells all deserve a lawyer's read before anyone signs.

A worked example at the citywide median

The citywide median asking rent on our book is $75 per square foot per year, so a 5,000 square foot floor carries $375,000 of annual rent, $31,250 a month. Each month of security parks $30,000 of the company's cash, and a several-month deposit runs well into six figures, earning nothing while it sits.

A burn-down schedule changes that math. If part of the security returns after each year of clean payment history, cash comes back exactly when a growing company can use it. On a letter of credit the same schedule steps the face amount down, shrinking both the bank's collateral requirement and its annual fee.

What is negotiable, and where we push

Almost everything in this article moves if someone argues it, and on a tenant-only mandate that argument is our job:

The amount. The first number is the landlord's most conservative read of the tenant's credit, and a well-organized financial package routinely brings it down.
The burn-down. A step-down after each year of clean payment history is the strongest lever on this clause, and it costs the landlord nothing unless the tenant performs.
The form. Where the tenant's bank supports it, a letter of credit keeps cash working in the business, and the choice of form should be the tenant's.
The draw language. The landlord should draw only after an actual default and notice, never on a unilateral claim, and the lease should say so plainly.

The traps that cost tenants money

The expensive mistakes hide in the conditions, not the headline number.

A burn-down conditioned on no default of any kind, so one late payment years earlier erases the whole schedule. It should survive anything cured on time.
An evergreen letter of credit renewing automatically at full face amount, with bank fees running every year, long after the risk justified it.
Replenishment clauses that let the landlord draw for a disputed charge and demand the money back within days, turning a billing argument into a default.
Return timing left vague, so the deposit sits hostage to a restoration dispute for months after the keys are back.
A building sale with no transfer language, leaving the tenant chasing the wrong party for its own money.

How many months is normal?

There is no posted schedule; the ask tracks the landlord's read of the tenant's credit, so established companies see lower asks and early-stage teams can see substantially more. The strongest lever is a burn-down schedule, which most landlords will discuss and few volunteer.

Who negotiates this for the tenant?

The security article is argued for you alongside free rent, the improvement allowance, and the guarantee. Nomad represents tenants exclusively, never landlords, across 300+ delivered New York offices, so we never soften the ask to protect a landlord relationship.

Is a letter of credit better than cash?

Often, when the company's banking relationship supports one, because the cash keeps working in the business instead of sitting in the landlord's account. The tradeoff is the bank's annual fee and the collateral behind the instrument; confirm the mechanics with the bank and on the specific lease before committing.

What is a burn-down schedule?

A negotiated step-down: after each year of clean payment history, part of the security comes back, or the letter of credit's face amount drops, until the landlord holds a fraction of the original. Watch the conditions, because a burn-down that dies on any technical default is worth far less than it looks.

When does the deposit come back at the end of the lease?

On the lease's timeline, which is why the timeline belongs in the lease. Push for a stated deadline after surrender, deductions limited to documented amounts, and return of the undisputed balance while any restoration item is argued. Left silent, the return can drift for months.