Notes from the Attorneys of the Massachusetts Association of REALTORS Legal Hotline
Q: I don’t usually do rentals but made an exception recently for a friend. I collected a one month security deposit at the beginning of a tenancy but did not deposit it in a separate interest bearing account or provide the correct receipt. This was approximately three months ago, what is the penalty for failing to comply with the security deposit laws?
A: A landlord loses his/her right to keep any portion of a security deposit even if the tenant causes damage to the rental unit if the landlord fails to deposit the security in a separate interest bearing account. If the landlord fails to comply with this requirement the tenant may be entitled to receive damages equal to three times the amount of the security deposit or balance to which the tenant is entitled plus 5 percent interest which is calculated from the date when the payment was due to the tenant, plus court costs and reasonable attorney’s fees.
Placing the deposit is a separate interest bearing account is only a portion of the security deposit law; anyone handling rentals should be well versed on all requirements or consult a professional for assistance. For further information regarding security deposits please visit: http://www.marealtor.com/content/security_deposits.asp
Landlord Rights and Responsibilities / Security Deposits: Prepared by: Massachusetts Association of Realtors for Massachusetts Office of Consumer Affairs
A last month’s rent is a prepayment made at the beginning of the tenancy to the landlord to be applied to the last month of the tenancy. There is no requirement for you to escrow the money in a separate interest-bearing account. A receipt must be given at the time the last month’s rent is taken indicating the amount, date of receipt, a notation identifying the money as a last month’s rent, the name of the person receiving the money or for whom the money is being received, the description of the premises for which the last month’s rent is taken, a statement indicating the tenant’s entitlement to yearly interest at the rate of 5 percent or such lesser amount as the landlord actually receives if the landlord chooses to escrow the money, and a statement telling the tenant to provide a forwarding address by the end of the tenancy to which the interest may be sent. Upon increase of the rent, you may require the tenant to increase his or her last month’s rent to the current rent level. (M.G.L. c. 186, § 15B).
Payment of Interest On Last Month’s Rent: Interest must be paid to the tenant either on the anniversary date of the tenancy or on a pro-rata basis, if the tenancy ends before one year, for all months except the last month of the tenancy. On the anniversary date of the tenancy, the landlord must send a statement as to the amount of interest due with payment of that interest or a statement indicating that the tenant may deduct the appropriate amount from the next rental payment. If you have not sent either of the above to the tenant by the anniversary date of the tenancy, the tenant may lawfully deduct the prescribed amount of interest from the next rental payment. This deduction is not a breach of the tenancy agreement allowing eviction. If you do not pay the interest within 30 days after the end of the tenancy, or the removal of the tenant from the premises, you will be exposed to liability of three times the interest due, plus court costs and attorney’s fees. (M.G.L. c. 186, § 15B (2) (a)).
Transfer of Last Month’s Rent to New Landlord: Upon the sale, foreclosure or other transfer of the building, the landlord must transfer the last month’s rent to the new landlord with accrued interest. The new landlord must give the tenant written notice of the transfer within 45 days of receipt. If the former owner fails to make the proper transfer, s/he is still liable to the tenant, but so is the new landlord in the amount of the last month’s rent. The new landlord can discharge their duty to the tenant, by allowing the tenant to live free for a period covered by the last month’s rent.
Security Deposit: A security deposit is money, paid by the tenant to you, and held in a separate interest-bearing escrow account to indemnify you against losses due to the tenant’s failure to pay rent, failure to pay appropriate tax escalators, or if the tenant damages the premises. Because this deposit belongs to the tenant until properly applied by you, you must:
- Hold the deposit in an interest-bearing Massachusetts bank separate from your own money;
- Give a receipt to the tenant within 30 days of taking the deposit, identifying the bank, address, account number, and the amount of the deposit held; and
- Pay 5 percent interest or any lesser amount of interest actually received from the bank where the deposit is held, if the tenant resides on the premises for at least one year. Said payment is to he made on the anniversary date of the tenancy.
Payment of Interest on Security Deposit: On the anniversary date of the tenancy, you must send the tenant a statement of the interest owed with a check for the interest, or you must notify the tenant that s/he may deduct it from the next rental payment. If within 30 days of the anniversary date of the tenancy you have failed to pay the interest, the tenant may lawfully deduct it from the next rent payment. Upon termination of the tenancy, you must forward the interest due to the tenant within 30 days.
Statement of Conditions: Either upon receipt of the deposit or within ten (10) days thereafter, you must provide the tenant with a Statement of Conditions, which contains a comprehensive list of all then-existing damage to the unit, which list is signed by you or your agent. The notice must inform the tenant that s/he must sign the list within fifteen (15) days of receipt or move-in, if it is correct. You must further inform the tenant that failure to re-submit the list may allow a court to view the tenant’s failure to sign as agreement to the completeness of the landlord’s proposed Statement of Conditions. You then have fifteen (15) days to sign off on the tenant’s list of damages or to send a clear statement of disagreement to the tenant. Although there are forms available for these purposes, it is recommended that an attorney or other real estate professional be consulted when taking a security deposit.
Deductions From Security Deposit: Upon termination of the tenancy, you must return the security deposit or balance thereof within thirty (30) days of the tenant’s vacating the apartment. You may only deduct for the following items:
- Unpaid rent not lawfully withheld;
- Unpaid increases in real estate taxes the tenant is bound to pay pursuant to a valid tax escalator clause in the lease; and
- Any reasonable amount necessary to repair damage caused by the tenant or their pets or guests.
- The normal wear and tear in an apartment is not a deductible item of damage.
If you deduct for damages, you must provide the tenant with a statement sworn to under the pains and penalties of perjury listing the damages for which you are deducting along with documentation showing the actual or estimated costs of these repairs such as bills, receipts, or invoices. You may not deduct for damages set out in the respective Statements of Conditions unless you made repairs to them subsequent to the start of the tenancy and they were again damaged by the tenant or persons within the tenant’s control.
If damages exceed the security deposit, you are free to sue for those as well.
Transfer of Security Deposit to New Landlord
Notice From New Owner: Within forty-five (45) days of the transfer, the new owner must notify the tenant that the security deposit has been transferred and that s/he is holding it for the benefit of the tenant. The notice must be written and must contain the new owner’s name, business address, business telephone number, and the same information for any agent.
Penalties For Failure to Properly Handle Security Deposit: If you do the following, the tenant is entitled to the immediate return of the security deposit:
- Fail to make the security deposit records available to the tenant during business hours;
- Fail within thirty (30) days of taking a security deposit to give the tenant a receipt with the name, address of the bank where the money is held, and account number of the bank in the amount of the deposit;
- Make deductions for damages without submitting the proper documentation described above; or
- Use a lease with provisions that conflict with the security deposit law and you attempt to enforce this lease or attempt to make the tenant waive his or her rights.
If you do the following, the tenant is entitled to the immediate return of the security deposit and treble damages, court costs and attorney’s fees:
- Fail to place the security deposit into a Massachusetts interest-bearing bank account separate from your own;
- Fail to return the security deposit or balance thereof within thirty (30) days after termination of the tenancy; or
- Fail to transfer the security deposit to the new landlord. (M.G.L. c. 186, § 15B).
A new landlord has the same transfer responsibilities as stated above for last month’s rent.
Continuing Liability of Former Owner: The former owner and agent remain liable under the treble damages provision of the Statute for retention and accounting, until either:
- The security deposit has been transferred and the tenant has been given the above-written notice; or
- The security deposit has been returned to the tenant.
The new owner has full liability for treble damages, even if the former owner fails to transfer the security deposit and fails to give the proper notice described immediately above.
It is recommended that if you choose to take a security deposit, you consult an attorney or other real estate professional before doing so, because the penalties for failing to properly handle the tenant’s money are severe.