By Robert Nislick
You are a Massachusetts landlord. When you leased your premises, you took a security deposit from your tenant. Unfortunately, you did not comply with the very strict requirements set forth in the Security Deposit Act.
Perhaps, for example, you failed to deposit the funds in a separate, interest-bearing account in a bank, located within the commonwealth under such terms as will place such deposit beyond the claim of your creditors. See G. L. c. 186, §15B(3)(a).
Instead, you simply deposited the money in your own checking account. That is something that a landlord cannot do. “A security deposit . . . shall not be commingled with the assets of the lessor . . . .” G. L. c. 186, § 15B(1)(e).
At some point, the tenant falls behind on his rent. The landlord wants to evict the tenant. While it may seem counterintuitive, it would be prudent for the landlord to return the security deposit prior to serving a notice to quit.
The landlord may become apoplectic upon hearing this suggestion. The tenant is not paying rent. So why should the landlord pay money back to the tenant? It sounds bizarre and contrary to common sense.
Under the scenario described above, where the landlord fails to deposit such funds in an account as required, or where the landlord fails to give a receipt to the tenant within thirty days after such deposit is received, as provided for in G. L. c. 186, § 15B(3)(a), the tenant is entitled to immediate return of the security deposit.
“The lessor shall forfeit his right to retain any portion of the security deposit for any reason . . . if he: (a) fails to deposit such funds in an account as required by subsection (3) . . . .” G. L. c. 186, § 15B(6)(a). If the lessor or his agent fails to comply with this clause, “the tenant shall be awarded damages in an amount equal to three times the amount of such security deposit . . . plus interest at the rate of five per cent from the date when such payment became due, together with court costs and reasonable attorney’s fees.” See G. L. c. 186, § 15B(7).
The landlord potentially faces a crushing financial penalty. Let’s say the security deposit was $2,000. He would have to return the $2,000 deposit, and pay the tenant $6,000 in damages, and pay the tenant 5% interest, and pay the tenant’s court costs, and pay the tenant’s reasonable attorney’s fees.
It gets worse. “[A] counterclaim for violation of the security deposit statute may be asserted as a defense to possession” Meikle v. Nurse, 474 Mass. 207, 214 (2016). Under G. L. c. 239, §8A, fifth par., “There shall be no recovery of possession under this chapter if the amount found by the court to be due the landlord equals or is less than the amount found to be due the tenant or occupant by reason of any counterclaim or defense under this section.” G. L. c. 239, §8A.
This means that if the value of the tenant’s security deposit counterclaim against the landlord exceeds the value of the landlord’s nonpayment of rent claim against the tenant, the tenant wins and the landlord loses. The landlord will not be able to evict the tenant.
Is there anything that the landlord can do to prevent this nightmare from happening? The landlord can likely avoid this draconian result by returning the tenant’s security deposit plus interest prior to starting the eviction process.
In Karaa v. Yim, 86 Mass. App. Ct. 714 (2014), a landlord leased a house to tenants, the tenants gave the landlord a security deposit, the landlord deposited the check into her own interest-bearing account the same day the lease was signed, and the landlord did not provide the tenants with a receipt in compliance with G. L. c. 186, § 15B. The tenants terminated the lease seven months early. The landlord returned the security deposit five months after the termination of the lease, shortly before bringing suit for breach of the lease for failure to pay rent. Id. at 720.
The tenants sought treble damages for the failure to segregate the security deposit and return it within thirty days of the termination of the lease. Id. at 720.
“However, the imposition of damages under subsection (7) is not automatic. . . . [S]ubsection (7) is triggered when the landlord ‘fails to comply with’ the listed clauses of subsection (6), yet subsection (6)(a) does not include a deadline for returning forfeited funds to the tenant, thereby leaving no means for determining what qualifies as noncompliance for the purpose of subsection (7).” Id. at 721.
“Any one of the violations of duty listed in subsection (6) will entitle the tenant to immediate return of his entire deposit on request, regardless of whether the violation was innocent or wilful. . . . If the landlord refuses to acknowledge his error and return the deposit, thus forcing the tenant to employ legal process to vindicate his rights, the landlord will be liable for treble damages, interest, costs, and attorney’s fees. . . . Where the landlord discovers or acknowledges his error and returns the deposit, and the tenant is not forced to resort to litigation to vindicate his rights, the multiple damages and attorney’s fees provisions of subsection (7) have no application.” Castenholz v. Caira, 21 Mass. App. Ct. 758, 762-763 (1986).
The Karaa Court applied this framework, and found that the landlords “did return the security deposit four days prior to the initiation of the underlying litigation and more than one month before the filing of the tenants’ answer and counterclaims. As such, the Karaas are in violation of subsection (3)(a), but have not triggered the treble damages provisions of subsection (7) through a violation of (6)(a).” See Karaa, 86 Mass. App. Ct. at 722.
When a landlord contemplates evicting a tenant, whether for nonpayment of rent, or where the tenancy has been terminated without fault of the tenant or occupant, or in an eviction for cause, it is important to first analyze whether the landlord has violated the security deposit law. The landlord should anticipate that the tenant will raise the security deposit as an issue in the case. If the landlord concludes that he has violated the security deposit law, the landlord should consider returning the security deposit as a first and necessary prerequisite to starting the eviction process, and as an action that can reduce his exposure to liability.
Robert Nislick is a Massachusetts landlord-tenant lawyer who practices in Central Housing Court, Eastern Housing Court, Northeast Housing Court, Southeast Housing Court, Western Housing Court, and the summary process session of the District Court.