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In Massachusetts, MA Gen L ch. 186 s. 15b largely governs the collection and repayment of security deposits. Property managers and landlords need to stick to these guidelines to ensure they are protected under Massachusetts security deposit law. This will be applicable if there is a valid written lease agreement.

Maximum Deposit

Landlords are not permitted to request a security deposit from a tenant in Massachusetts that exceeds one month's rent. Therefore, the maximum amount is a security deposit equal to one month's rent. However, the following advance sums may be collected separately by the landlord:

  1. The purchase and installation cost for a lock and key.
  2. The first month's rent.
  3. The last month's rent.

Is there an additional security deposit for pets? According to Massachusetts law, the landlord may request an additional pet deposit. This does not apply to disabled people who need a service animal as it is seen as a form of discrimination.

However, as per the Federal Fair Housing Act, if tenants use emotional support animals and service dogs, they need to have an equal opportunity to enjoy and use the residential unit.

Unit Condition

The landlord is required to give the tenant a report on the condition of the rental unit after collecting the tenant's security deposit or within 10 days of the lease's commencement date. This declaration must list any and all current building or sanitary code violations as well as any damage to the unit that has already occurred. 

If the lessee disagrees with any element of the statement, they must provide the landlord with a signed copy of the statement that specifically lists the points they have a problem with.

Allowable Deductions

The landlord may only start making the necessary deductions from the tenant's security deposit once the lease has ended or been terminated. Deductions are allowable in terms of:

  1. Unpaid rent.
  2. Unpaid water charges.
  3. The cost of repairs for damage brought on by the tenant, excluding normal wear and tear and damage noted in the statement of the unit's condition submitted at the start of the rental agreement.
  4. An unpaid increase in real estate taxes in the lessee is responsible for the payments.

The landlord is not permitted to subtract anything not on this list.

Deposit Holdings

Landlords in Massachusetts are prohibited from combining security deposits with other funds. They must deposit the funds in a different interest-bearing account in the state. However, the lessor does not need a separate bank account for each lessee. The same account may be used to house security deposits from many tenants as long as it only contains security deposits and prepaid rent.

Such security deposit cannot be kept in the same account as other funds, including personal savings or rental income.

The account ought to be set up so that it is exempt from the creditors of the landlord and that it may be transferrable in the event that the landlord sells the rental property.

Furthermore, the security deposit must be deposited by the landlord, who is required to give the tenant a receipt. The account number, deposit amount, and bank's name and address must all be listed on the receipt.

The lessee will be entitled to the immediate return of the tenant's deposit if the landlord doesn't follow the aforementioned condition, and the landlord will lose all rights to keep any sum of the deposit. Additionally, the landlord could be held accountable for triple the amount being withheld, reasonable attorney's fees or court costs, and 5% interest.

Returning Deposits

Sworn Statement for Deductions

The landlord must give the tenant details about any security deposit deductions within the same time frame if there are any. In particular, if a landlord deducts the cost of repairs from rent, the landlord is required to give the tenant an itemized list of damages that is sworn to by the landlord, detailing the nature of the damage, the required repairs, and any supporting documentation, such as cost estimates or receipts.

Time Frame

Within 30 days after the end of the rental agreement, the landlord shall refund the security deposit, or whatever is left of it after the permitted deductions. Any interest that is due to the tenant but cannot be deducted from the rent because the lease has terminated must also be paid to the lessee within 30 days of the lease's end if the rental is terminated in the middle of it.

Failure to Return the Security Deposit

The tenant is entitled to the security deposit as well as up to triple the amount the lessor is withholding, 5% interest, court expenses, and attorney's fees if the landlord refuses or does not return the security deposit within the allotted 30 days.

Taxable Deposit

Security deposits are not taxable upon receipt. Therefore, they should not be included as income if the landlord expects that the security deposit will be returned to the tenant.

However, security deposits are taxable once the obligation to return the funds no longer exists.

The security deposit should be declared as income in the period in which the tenant forfeited their right to a refund.

Additional Rules

Record-keeping Requirements

The following details must be included in the security deposit records that landlords must keep:

  1. The lease termination date of the lessee responsible for the damage.
  2. A detailed account of all damages to the rental unit for which the landlord either accepted, reimbursed, or pursued legal action against the tenant.
  3. Information on whether repairs were done, including the date, receipts, and price.

The aforementioned, as well as any statements or receipts given to the tenant, must be documented by the landlord for a minimum of two years for each rental unit. Both the tenants' request and the residential property inspection must be documented. The landlord must promptly restore any security deposit money along with any interest that has accumulated on it if the landlord does not maintain appropriate records for the property inspection for the lessee or a prospective tenant.

New Property Owner's Responsibility

The old landlord is required to give the security deposit and any interest earned to the new owner if the rental unit is sold while the lease is still in effect. As if the new owner were the original landlord, the new owner inherits the former landlord's rights and obligations with regard to the security deposit, including adhering to the guidelines for holding and returning it. Within 45 days of receiving the security deposit, the new owner must give the tenant the appropriate notification of the specifics of how and where the money is stored.

Receipt Requirements

Under Massachusetts security deposit law, a receipt for the security deposit must be provided by the landlord. When the security deposit is paid or handed to the landlord, the receipt must be given to the lessee within 30 days. The receipt must include the date, the amount of the security deposit received, the name of the recipient (and for whom, if an agency is receiving the security deposit on behalf of the landlord), and a description of the rented space. The person who receives the security deposit must sign the receipt.

Interest Payments

If a landlord holds a tenant's security deposit for a year or more, they are required to pay them annual interest at the lower of 5% per year or the interest that the account where the security deposit is kept yields. When a landlord is compelled to pay interest, the landlord must give the tenant a statement at the end of each year of tenancy that contains the interest due and the information about the bank holding the tenant's security deposit. The landlord has two options: either include an additional statement stating that the tenant has the option of having the interest payable to the latter credited to the subsequent rental payment or send the interest payment along with the statement.

The Bottom Line

The provisions under Massachusetts law are in place to offer protection to landlords and tenants. Therefore, it is crucial to have a thorough understanding of how Massachusetts security deposit laws and residential leases work.

FAQs

Can the Tenant Use the Security Deposit as the Last Month's Rent?

No, tenants are not permitted to use the security deposit as the last month's rent under Massachusetts security deposit law. However, landlords are permitted to collect the previous month's rent in advance; this must be made clear at the time it is collected.

Can the Landlord Collect the Last Month's Rent in Advance?

Yes. When collecting the final month's rent in advance, the landlord is required to give the tenant a receipt that states the following in full:

  1. The funds are to be used at the rent for the last month of the lease.
  2. The date the final month's rent was received and the amount.
  3. Description of the premises.
  4. The name of the person receiving it.
  5. A clause stating that, upon termination of the lease, the tenant shall give the landlord a forwarding address.
  6. A statement indicating that the lessee is entitled to interest accrued thereon.

The final month's rent will accrue interest at a rate equal to the lower of 5% or the interest earned on the security deposit and other advance payments made by such tenant.

What Happens to the Security Deposit If You Sell the Property?

The landlord is liable for transferring the security deposit and any interest to the new owner if the property is sold or ownership is transferred. Furthermore, the new owner is then accountable for alerting the tenant, along with their name, phone number, and address, within 45 days of the transfer that they are now in charge of such security deposit.

Is There a Difference Between Damage and Wear and Tear?

Yes. Normal wear and tear is not deductible, whereas damage is deductible. The criteria for deductions is established under Massachusetts law. Only items that have sustained excessive wear and tear are eligible for deductions. This suggests that a carpet stain for a tenant who rented the property for an extended period of time would be seen as normal. Litigation could be a possibility. Some landlords view items such as paint, carpet, curtains, and even garbage disposals as consumables that need to be replaced after each vacancy.

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Resources

  1. https://www.mass.gov/info-details/massachusetts-law-about-tenants-security-deposits
  2. https://www.liveabout.com/massachusetts-security-deposit-law-2125077
David Bitton

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!