Security Deposits: Could They Be More Harmful Than Helpful?

by Robert P. Rudolph

According to the US Census Bureau, there are nearly one million renter-occupied housing units in the Commonwealth of Massachusetts. It is estimated that 75 percent of rental units are owned by small property owners who do their own management instead of contracting it out. When a new tenant moves in, it is customary for a landlord to collect a security deposit to be used to repair any damage caused by the tenant during the lease. However, many landlords fail to comply with the Massachusetts Security Deposit Law, General Law Chapter 186, Section 15B. In doing so, these landlords put themselves in danger of significant exposure, well in excess of the value of the security deposit.

Massachusetts law permits a landlord to require a tenant to pay the following (and only the following) upon the commencement of a tenancy: (i) rent for the first full month of occupancy; (ii) rent for the last full month of occupancy calculated at the same rate as the first month; (iii) a security deposit equal to the first month’s rent; and (iv) the purchase and installation cost for a key and lock. If a security deposit is taken, a landlord must strictly comply with the Security Deposit Law.

A security deposit must be held in a separate, interest-bearing account at a bank located within Massachusetts. At the time the security deposit is received, the landlord must give the tenant a receipt indicating the amount of the security deposit, the name of the person receiving it, the name of the tenant for whom it is received, the date it is received and a description of the premises rented. The receipt must be signed by the person receiving the security deposit. Within 30 days of deposit, the tenant must be given a receipt indicating the name and location of the bank where the deposit was made, the amount and the account number of the deposit.

If the security deposit is held for one year or longer from the commencement of the tenancy, interest must be paid, beginning with the first day of the tenancy, at a rate of five percent per year, or in the amount received from the bank, and is payable to the tenant at the end of each year of tenancy. At the end of each year of tenancy, the landlord must send the tenant a statement indicating the amount of interest payable to the tenant, together with the interest due or a statement stating it may be deducted from the tenant’s next rental payment.

Within 30 days after the end of tenancy, the landlord must return the security deposit to the tenant, or any balance thereof; provided, however, that the landlord may make deductions for the following (and only the following): (i) any unpaid rent or water charges; (ii) any unpaid increase in real estate taxes the tenant is obligated to pay; and (iii) a reasonable amount necessary to repair any damage caused to the unit by the tenant or any person under the tenant’s control, reasonable wear and tear excluded.

If a landlord makes deductions for damage he or she must provide the tenant with an itemized list of damages, sworn and signed by the landlord under the pains and penalties of perjury, itemizing in detail the nature of the damage and repairs necessary to correct such damage. Invoices indicating the actual or estimated cost should be included. A landlord must retain all records related to a security deposit for two years from the termination date of the tenancy.

If a tenant is successful on a claim against a landlord for failure to strictly comply with the Security Deposit Law, the landlord will be liable to the tenant for treble damages, costs and attorney’s fees. In addition, in the matter of Meikle v. Nurse, the Supreme Judicial Court held that a violation of the Security Deposit Law may be asserted as a defense by a tenant to a landlord’s eviction proceeding when the amount owed by the landlord is greater than the amount owed by the tenant. Accordingly, a landlord may not be able to proceed with an eviction until any violations of the Security Deposit Law are remedied. A security deposit can be an important protection for a landlord, but if taken, the Security Deposit Law must be strictly complied with to avoid exposure.