Security deposits can be a major source of frustration for both landlords and tenants. A would-be immigrant family from China recently found themselves fighting over their security deposit and last month’s rent in Massachusetts courts, following a failed attempt to send their kids to Massachusetts schools. See Karaa v. Yim, Mass. App. Ct, No. 14-P-17, slip. op. (December 5, 2014).
Massachusetts law provides very specific guidance for landlords and rental tenants, including requirements for the handling of security and last month’s rent deposits. These requirements include:
- Landlords may require the payment of a security deposit and/or last month’s rent. Neither of them may exceed the amount of the first month’s rent.
- Landlords must give tenants a receipt for the security deposit and/or last month’s rent within 30 days of receiving them.
- The security deposit must be held in a separate, interest-bearing account in a Massachusetts bank. Within 30 days of receiving a deposit, the landlord must give the tenant a receipt identifying the bank’s name and address, the account number, and the amount of the deposit. If the tenant lives in the apartment for at least one year, the tenant is entitled to either 5% interest or whatever lesser amount is received from the bank where the deposit is held. Failure to establish a separate, interest-bearing account, or to provide a tenant with an appropriate receipt, entitles the tenant to immediate return of the security deposit.
- For the last month’s rent, the tenant is also entitled to either 5% interest or whatever lesser amount is received from the bank where the rent was held— even if the tenant did not live in the apartment for one year. If the last month’s rent is not held in a bank account, the landlord must pay 5% interest per year.
- Earned interest is payable annually, and within 30 days of termination of tenancy.
- Treble damages are available to tenants for landlords’ violations of certain of these requirements.
In Karaa v. Yim, the recent case, the landlord delayed the return of the tenants’ security deposit, and failed to credit the tenants’ interest on their prepaid, last month’s rent. See Karaa v. Yim, Mass. App. Ct, No. 14-P-17, slip. op. (December 5, 2014). Although the tenants breached their contract by terminating it early, the trial and appeals courts still required the landlord to pay the required interest.
However, the courts declined to allow treble damages for the landlord’s delayed return of the security deposit. Although treble damages are allowed when a landlord fails to return a security deposit, in this situation, the tenants offered the security deposit to the landlord as a settlement for their breach. The Appeals Court held:
Where the tenants offer the security deposit as compensation for their own breach of the lease, a landlord’s failure to return the security deposit within thirty days will not require an award of treble damages. Rather, to avoid treble damages,… the landlord must return the security deposit, as was done here, prior to the tenant’s resort to litigation.
Id. at 17. The tenants ended up owing the landlords tens of thousands of dollars for rent, interest, utilities, realtor fees, and attorney’s fees. Id. at 5.
The complex landlord and tenant laws are intended to protect both renters and landlords, but even the courts acknowledge that these laws can be confusing! See id. at 12-13, calling the laws on security deposits “less obvious.”
If you are considering entering into a rental contract, be sure that you know your rights and responsibilities in advance! The attorneys at Hutchins Law, P.C. can help you understand your rights and protect your interests. If you have questions about a new lease agreement or an existing contract, contact us today.