But If You Do – Things to Remember When Taking a Security Deposit in Massachusetts

By Robert Nislick

You are a Massachusetts landlord. A new tenant is about to lease your house or apartment from you. You would like to take a security deposit from this person.

Allow me to talk you out of it. Read my companion article, “Don’t Do It – The Case Against Taking a Security Deposit in Massachusetts”.

Let’s say you still want to take a security deposit. The landlord should familiarize himself or herself with the statute, G. L. c. 186, § 15B, and the Attorney General’s Regulations, 940 Code Mass. Regs. § 3.17 (4).

If you read the statute and regulations and have a hard time understanding them, then you may be better off deciding not to take a security deposit. You should consider seeking the advice of counsel, in any event, especially if you are an inexperienced landlord. There are so many ways you can lose money when renting property. This article highlights certain things the landlord should or should not do, rather than emphasizing the penalties for noncompliance. A good lawyer can help you to understand the risks and take steps to reduce your exposure to them.

The amount of the security deposit cannot exceed the first month’s rent. See G. L. c. 186, § 15B (1) (b) (3).

The landlord must provide a receipt to the tenant at the time of receiving it. See G. L. c. 186, § 15B (2) (b). The receipt must indicate, “the amount of such security deposit, the name of the person receiving it and, in the case of an agent, the name of the lessor for whom such security deposit is received, the date on which it is received, and a description of the premises leased or rented. Said receipt shall be signed by the person receiving the security deposit.” See id.

Additionally, the landlord must provide a statement of present condition to the tenant, upon receipt of the security deposit, or within ten days after commencement of the tenancy, whichever is later. See G. L. c. 186, § 15B (2) (c). The security deposit law specifies that the statement must contain a comprehensive listing of any damage then existing in the premises. The landlord or his agent must sign the statement. The statement of condition must also provide a certain notice to the tenant, that the tenant must either sign in agreement that the list is correct and complete, or attach a separate signed list of damage that the tenant believes exists in the premises. See id.

Additionally, the landlord must place the security deposit in a separate interest-bearing account in a bank located within Massachusetts. See G. L. c. 186, § 15B (3) (a). The account must place the deposit beyond the claims of the landlord’s creditors. See id. The account must also have the ability to be transferred to a subsequent owner of the property. See id.

The landlord must also give the tenant, within thirty days after receiving the deposit, a receipt that indicates, “the name and location of the bank in which the security deposit has been deposited and the amount and account number of said deposit.” See id.

Additionally, the landlord must maintain a record of all security deposits received. See G. L. c. 186, § 15 (2) (d). The landlord must make the record available for inspection upon request of a tenant or prospective tenant. The record applies not just to the specific unit that the tenant is renting. The statute actually allows the tenant to inspect the record for each dwelling unit or premises for which the landlord has accepted a security deposit.

Let’s say that the landlord takes a security deposit from a tenant who has signed a multi-year lease. At the end of each year of a tenancy, the landlord shall pay to the tenant the interest that has been received from the bank where the security deposit has been held. See G. L. c. 186, § 15B (3) (b). Also, at the end of each year of tenancy, the landlord shall give the tenant a statement that indicates “the name and address of the bank in which the security deposit has been placed, the amount of the deposit, the account number, and the amount of interest payable by such lessor to the tenant.” See id. The landlord also shall notify the tenant that he or she may deduct the interest from the tenant’s next rental payment.

What happens when the tenancy ends? Within thirty days, the landlord must return the security deposit, or the balance thereof, to the tenant. The security deposit law specifies three types of deductions that the landlord may make. In a nutshell, deductions are permitted for unpaid rent or water charges; an unpaid increase in real estate taxes which the tenant is obligated to pay pursuant to a tax escalation clause; and a reasonable amount necessary to repair any damage, reasonable wear and tear excluded. See G. L. c. 186, § 15B (4).

Note that if the landlord wishes to deduct for damage, he must provide to the tenant within such thirty days, “an itemized list of damages, sworn to by the lessor or his agent under pains and penalties of perjury, itemizing in precise detail the nature of the damage and of the repairs necessary to correct such damage, and written evidence, such as estimates, bills, invoices or receipts, indicating the actual or estimated cost thereof.” See G. L. c. 186, § 15B (4) (iii).

The statute also details what must happen when a landlord who is holding a security deposit transfers the property. See G. L. c. 186, § 15B (5).

The statute also details that the landlord shall forfeit his right to retain the security deposit if he fails to deposit the funds as required; fails to furnish to the tenant an itemized list of damages within thirty days after the termination of the occupancy; uses in a lease any provision which conflicts with the security deposit law, or seeks to obtain a waiver from it; fails to transfer the security deposit to a new owner; or fails to return to the tenant the security deposit or balance thereof to which the tenant is entitled after deducting therefrom any sums in accordance with the provisions of this section, together with any interest thereon, within thirty days after termination of the tenancy. See G. L. c. 186, § 15B (6).

About the author: Robert Nislick is a Massachusetts real estate lawyer who handles residential and commercial landlord-tenant matters. For more information, call him at (508) 405-1238, or e-mail him at rob@nislick.com.

Don’t Do It – The Case Against Taking a Security Deposit in Massachusetts

By Robert Nislick

You are a Massachusetts landlord. A new tenant is about to lease your house or apartment from you. You would like to take a security deposit from this person.

In the event that the tenant damages the property or fails to pay rent, the idea of having a security deposit available to cover these costs may seem like a good idea. Most landlords probably don’t appreciate the irony that taking a security deposit, in reality, subjects them to a great deal of risk.

If you knew that you could make an honest mistake and still end up having to pay the tenant three times the security deposit, five percent interest, court costs, and the tenant’s attorney’s fees, would you still take one?

Let’s say you took a $2,000.00 security deposit. For whatever reason, you failed to place these funds in a separate bank account. Alternatively, you failed to return the security deposit to the tenant within thirty days after the end of the tenancy.

Under these scenarios, the security deposit law states that, “the tenant shall be awarded damages in an amount equal to three times the amount of such security deposit or balance thereof to which the tenant is entitled 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 could easily have to pay the tenant more than $7,000.00. Additionally, once a judgment enters, it grows at 12% per year.

Let’s say the tenant sues the landlord to recover her security deposit. Suppose the tenant has damaged the premises. The statute sets forth five separate situations in which the landlord would be barred from filing a counterclaim for damage to the premises. See G. L. c. 186, § 15B (6). The landlord, however, would not be entirely without a remedy. He would have to file a separate civil suit against the tenant to recover for property damage. Nevertheless, the statute forces the landlord to take a more convoluted procedural route than a defendant, in most other kinds of cases, normally has to take.

Suppose the tenant files a small claim against the landlord to recover a security deposit and wins. The landlord wishes to appeal. Under G. L. c. 218, § 23, the landlord would have to provide a bond in an amount roughly equal to the amount of the judgment that entered against him, in order to appeal and have a new trial.

Let’s back up for a moment. Imagine that a tenant who just moved out has wrecked the place. The landlord wants to deduct from the security deposit to repair damage caused by the tenant beyond reasonable wear and tear. Even if the landlord follows the statute to the letter in making the deduction, the tenant may still disagree and choose to file suit. A landlord could easily find himself forced to expend time and resources defending against what appears to be a frivolous or meritless lawsuit.

Under all the circumstances, why would a landlord still want to take a security deposit? It is true that not every landlord gets burned. But if the decision to take a security deposit carries with it a substantial risk of suffering an expensive and unjust outcome, then wouldn’t the landlord simply be better off not taking one to begin with?

About the author: Robert Nislick is a Massachusetts real estate lawyer who handles residential and commercial landlord-tenant matters. For more information, call him at (508) 405-1238, or e-mail him at rob@nislick.com.