Massachusetts Security Deposits and Last Month's Rent--Confusion continues to reign

I am sure that many of you are involved in rental property, either as Landlords or Tenants. In my over forty years of practicing real estate law, I continue to be amazed at some of the misconceptions and misunderstandings both Landlords and Tenants have over residential security deposits and last month's rent. These items are present in almost all residential rental situations. How they are treated, however, varies and, in truth, there is no reason for any deviation from statutorily approved rules. So, I am writing this post to inform all of you Landlords and Tenants what you should be doing.

Security Deposits:

There is a Massachusetts stature which governs security deposits, and it is precise. These are the salient aspects of the statute:

•1. The security deposit needs to be placed in a separate savings account, with at least one of the Tenant's Social Security Number thereupon.

•2. The Landlord is required to notify the Tenant as to the name of the Bank in which the security deposit is located.

•3. The Landlord should pay the Tenant annually the interest (which may not be large, but must exist) accrued on the security deposit.

•4. When the Tenancy is completed, the Landlord needs to return the security deposit to the Tenant within thirty (30) days of termination. If the Landlord intends to withhold all, or part, of the security deposit, it must inform the Tenant of that decision in that period.

•5. It is highly recommended, although not absolutely required, that the Landlord and Tenant execute a Condition Statement through which the parties agree about the conditions of the leased premises when the Lease begins. This will eliminate disputes about prior conditions when the Lease ends.

•6. The rules for security deposits are not governed by how many units are involved. If you rent out a single-family home and receive a security deposit, you must abide by the security deposit rules.

Last Month's Rent:

There is a statute governing this item as well, and it is not as stringent as the rules for security deposits:

•1. The Landlord can utilize these funds during the term of the Lease. There is no requirement that the funds be placed in a segregated account.

•2. On an annual basis, the Landlord needs to credit the Tenant with interest on the amount which has been paid for last month's rent. The rate of interest must be reasonable in light of current interest rate scenarios.

•3. The rules for last month's rent are not governed by how many units are involved. If you rent out a single-family home and receive last month's rent, you must abide by the last month's rent rules.

I am reasonably confident that many of my readers may not be aware of some of these rules. They can become very, very important when a property is foreclosed upon, and a Tenant is trying to get his or her security deposit returned. They are also very important to Landlords. Massachusetts courts have held that the failure to establish an appropriate, segregated security deposit account is a per se violation of the consumer protection law. That can get very expensive, since double or treble damages may be awarded.