The Do’s and Don’ts of Security Deposits and Last Months Rent : Massachusetts Landlord Training Series
Security deposits are one of the biggest reasons that Massachusetts landlords get in trouble and have issues during the eviction process. This is because the Massachusetts laws pertaining to a landlord accepting the security deposit are complex and even an innocent mistake can be extremely costly, usually to the tune of three times the value of the security deposit. We recommend that landlords do not charge a security deposit, and only collect last month’s rent. But whatever choice you make, if you could do collect a security deposit there are some practices you must follow to not break the law.
Security deposit laws in Massachusetts offer the landlord a very small amount of security, for a large amount of risk. In reality, any significant damage caused by the tenant, will not be covered by a security deposit, but if you keep any portion of a tenant security deposit, the most likely result will be a lawsuit. To make matters worse, if the judge agrees with the tenant side of the story, the landlord can be facing treble damages (triple) and also be forced to pay the tenant’s attorneys fees. It is more cost-effective and far less hassle, to protect your investment by carefully screening tenant’s and also treating your tenants well.
Under Mass. General Laws, ch.186, §15B, at the beginning of the tenancy, you may charge only:
- rent for the first month;
- rent for the last month, calculated at the same rate as the first month;
- a security deposit equal to the first month’s rent; and
- the purchase and installation cost for a key and lock. This does not mean a key deposit. The law does not provide for a key deposit.
Massachusetts law does not allow you to charge any other fees at the beginning of the tenancy, and you may not charge several months rent in advance.
For a security deposit, you must:
- Place it in an escrow account in a Massachusetts bank free from the reach of your creditors;
- transfer the deposit to the new owner when you transfer the premises
- give the tenant a receipt showing the amount of the deposit, your name, the address of the premises, and the name of the bank and the account number in which the security deposit is being held;
- give the tenant a statement of the present condition of the premises (the form to comply with this requirement is located below);
- if the tenant submits to you a separate list of damages, you must return a copy of the tenant’s list to the tenant within fifteen days of receiving it, with either your signed agreement with the list or a clear statement of your disagreement attached;
- pay the tenant 5% interest per year on the deposit, or the amount of interest you receive from the bank each year if that is less; # keep careful records on the security deposit and make them available to the tenant for inspection at your office during normal business hours.
You must return the deposit within 30 days after the tenant leaves the property, if they are a tenant at will, or within 30 days after the expiration of the lease. The only time you can use a security deposit for rent owed, is rent that is not legally being withheld or deducted (in the case where the tenant fix something that was broken, which the landlord had failed to fix). If you do deduct for damages, you must follow the letter of the law exactly.
For the last month’s rent, you must:
- give the tenant a receipt that states:
- the amount of the rent,
- the address of the premises,
- the person receiving the rent,
- that you must pay interest, and
- that the tenant should provide you with a forwarding address where the interest may be sent; and
- pay the tenant 5% interest yearly or notify the tenant that the interest may be deducted from the next rental payment. You don’t have to hold the last month’s rent in an escrow account, but you may not deduct for damages to the unit from the last month’s rent. If you do use an escrow account for last-month’s rent, you may pay the tenant the amount of interest you actually receive in the account, if it is less than 5%.
If you fail to comply with any of these requirements, the law allows the tenant to sue you for damages, including return of the deposit. For some violations, damages include three times the interest due or three times the amount of the deposit, plus the tenant’s attorney’s fees. A violation of any of these provisions may also be a violation of Mass. General Laws, ch.93A, the Massachusetts Consumer Protection Law. If you have already violated the law, it is generally safest to return the security deposit immediately to avoid having to pay treble damages. You may not like to do this, especially where the tenant owes rent or has severely damaged the unit. But even if it isn’t clear that you have violated the law, returning the deposit will probably save you money. The Massachusetts Appeals Court has ruled that, so long as the tenant still occupies the apartment, you may avoid the treble damages by returning the security deposit immediately on demand. (Castenholz v. Caira, 21 Mass. App. Ct. 758, 490 N.E. 2d 494 (1986).) And now you know why we advised you not to take a security deposit!
Since the rules are different for security deposits and last months rent deposits, it is important for you to see that the documents make clear which kind of deposit you are taking. If the tenant pays by personal check, be sure the description of the payment in the “memo” section of the check is correct. If the tenant pays in any other way, be sure to give a receipt which includes an accurate description of the payment.
The security deposit and last month’s rent law does not apply to any rental for a vacation or recreational purpose of 100 days or less in duration. It also does not apply to commercial rentals.
Since you are only allowed to charge the payments listed above, there is no provision for a “pet deposit” except as part of an authorized security deposit. One Housing Court case holds that a monthly “pet fee” is prohibited, at least when the lease does not specify that it is additional rent.
Massachusetts Security Deposit Law and Cases: