Knowing state rules and regulations regarding security deposit is a way for both landlords and tenants in Massachusetts to protect their interests.
Quick Facts for Massachusetts
- Maximum Amount: Not more than one month’s rent
- Duration for Return: Within 30 days from lease end
- Penalty for Late Returns: Tenant will be paid 3x the original deposit amount, plus interests
- Itemized Statement of Damages: Required, to be given within 30 days of lease end
Purpose of a Security Deposit
The purpose of a security deposit is to serve as a safety net for landlords if they suffer financial losses caused by a tenant that may include damage to the rental property, unpaid rent or other breach of the lease agreement. A security deposit ensures that a landlord is compensated for financial losses, but it may also incentivize tenants to adhere to their lease obligations so they can have a refund of their security deposit when the tenancy is terminated.
Allowable Security Deposit Charge in Massachusetts
Massachusetts landlords must only charge a tenant for the first and last month’s rent, a new lock and key, and a security deposit equal to the first month’s rent when the tenant first moves into the rental unit. A landlord may not charge a tenant other fees, such as pet fees, cleaning fees and application fees (Section 15B (1) (b)).
Security Deposit Rules & Regulations in Massachusetts
- Storing Security Deposit: Massachusetts landlords are required to keep a tenant’s security deposit in an account that’s separate from their own assets, and the security deposit cannot be a part of any claim by a creditor of the landlord (Section 15B (1) (e)). A landlord has 30 days after receiving the security deposit to place it in a bank. The landlord must also notify the tenant in writing of the name and address of the bank, the interest rate applied to the security deposit, the amount deposited and the account number associated with the security deposit.
If a landlord fails to provide the statement to the tenant, the tenant would be entitled to a full refund of their security deposit.
- Receipt Requirement: Before a tenancy period begins, a landlord must give a prospective tenant a receipt indicating the amount of security deposit received, the date on which it was received and its intended purpose. The landlord should also provide a statement that indicates that the tenant is entitled to interest on the security deposit (Section 15B (2) (a)).
- Security Deposit Interest: A landlord is required to pay interest on a tenant’s security deposit at a rate of five per cent per year, or at a rate received from the bank where the deposit is held (Section 15B (2)(a)).
- Allowable Deductions from Security Deposit: In Massachusetts, landlords are allowed to make deductions from a tenant’s security deposit to cover (Section 15B (4) (i) (ii) (iii)):
- Unpaid rent
- Unpaid water charges
- Any unpaid real estate taxes that the tenant was obligated to pay.
- Damage in excess of normal wear and tear
A landlord cannot make any deduction from the security deposit for any purpose other than that established by the law.
- Rental Unit Change Ownership: In the event that the rental unit changes ownership through sale or transfer, or some other way, the landlord is responsible for transferring the security deposit, along with any interest earned on the security deposit to the new owner. The new owner is then responsible for retaining and returning the security deposit. The new owner must notify the tenant in writing within 45 days of the transfer of the security deposit. The notice should include the name, business address, and business telephone number of the new owner, or that of an agent, if any (Section 15B (5)).
- Security Deposit Records Landlord Must Keep: Massachusetts landlords are required to keep records of any rental property in which a security deposit was received. The record should cover (Section 15B (d)(i-iii)):
- A detailed description of specific damage to the unit
- Tenancy termination date
- Note that damages have been repaired, the date of the repairs, the cost associated with the repairs and copies of any receipts or invoices of the repairs
- Copies of any other notices that were given to the tenant, such as security deposit receipt or a statement of condition.
- Applying Security Deposit as Last Month’s Rent: A security deposit is not intended to be used as the tenant’s last month’s rent. In Massachusetts, tenants are required to provide a deposit for first and last month’s rent.
- How to Get Full Refund: At the end of the tenancy, a full security deposit can be returned to the tenant if there is no damage to the rental property, rent is paid in full, and all charges in the rental agreement are covered.
Returning Security Deposits in Massachusetts
- Time Frame: When a lease is terminated a tenancy-at-will or the end of the tenancy, a Massachusetts landlord must return the tenant’s security deposit or any remainder within 30 days. However, the landlord has the right to make certain deductions related to damages from the security deposit before making a refund.
- Itemized Statement: In the event that the landlord has suffered damages caused by the tenant, he/she should provide the tenant with an itemized list of damages within thirty days of the lease termination. The statement should itemize specifically the nature of the damage and the repairs necessary, as well as the estimated cost of each repair shown in estimates, bills, invoices or receipts. The landlord has a right to recover further damages from a tenant if the cost of repairing or replacing any property exceeds the amount of the tenant’s security deposit. In this case, the tenant forfeits his/her right to the security deposit and the landlord can take legal action to recover such losses (Section 15B (4)(iii)).
- Landlord Penalties for Noncompliance: Failure by a landlord to place the security deposit in an interest-bearing account, transfer the funds when ownership changes, and returning the security deposit during the required time period will force the landlord to pay tenants three times the amount of the original security deposit or the remainder, plus earned interest on the security deposit, along with court costs and reasonable attorney’s fees, if applicable (Section 15B (7)).
Landlord’s Forfeiture of Security Deposit
There are certain clear instances when a landlord loses the right to claim any portion of a tenant’s security deposit (Section 15B (6) (a-e)):
- Landlord fails to deposit security deposit in an account as required
- Landlord fails to provide the tenant with the itemized list of damages within thirty days after the termination of the tenancy, if any
- Any attempt by the landlord to obtain from the tenant or prospective tenant a waiver of any provision established by the state’s security deposit law
- Landlord fails to transfer the security deposit after a transfer of ownership in the rental property
- Landlord fails to return to the tenant the security deposit or any remainder, along with any interest within thirty days after termination of the tenancy
“Normal Wear and Tear” vs. Damage in Massachusetts
- “Normal wear and tear” is deterioration that occurs as a result of use for which the rental unit is intended and without negligence, carelessness, accident, or misuse or abuse of the premises or contents by the tenant or members of his household, or their invitees or guests. It can include minor issues, such as gently worn carpets, loose door handles, fading wall paint and flooring, stained bath fixtures, lightly scratched glass and dirty grout that occur naturally as a result of the tenant using the property as it’s designed to be used.
- “Damage” refers to destruction to the rental unit that occurs because of abuse or negligence by a tenant during the course of the tenancy and can affect usefulness, value, normal function of the rental unit. Pet damage (heavily stained and ripped carpet), broken tiles, hole in the wall, broken windows and missing fixtures are all examples of damage.
Security Deposits and Tax Filing in Massachusetts
What happens to the security deposits when the lease is terminated depends on whether it is refunded or it is withheld by the landlord.
- Accounting for Security Deposits: Security deposits are treated as either assets or liabilities when filing taxes. It is not automatically rental income when first received. Tenants shouldn’t deduct security deposits as expenses when filing their taxes and landlords shouldn’t declare them as income when in escrow intended to be returned to the tenant at the end of the tenancy. Security deposits are not income until they become as such.
- Security Deposit Write-off: Usually, landlords cannot deduct security deposits when filing taxes as expenses before they are used for one purpose or another. If a landlord withholds part or all of the security deposit for unpaid rent, then that amount should be included as income for that year when filing taxes. Forfeited deposits should be declared as income on a landlord’s tax return. A deposit is taxable income only if and when a landlord has no obligation to refund the tenant.
The Law on Security Deposits in Massachusetts
Massachusetts security deposit law is found in Massachusetts General Laws. Chapter 186, section 15B.
Tips for Massachusetts Landlords on the Right Practices for Security Deposits
- Only charge a tenant for the first and last month’s rent, a new lock and key and a security deposit equal to the first month’s rent
- Place security deposit in an interest bearing-account and provide tenants with a receipt
- Return a tenant’s security deposit or any remainder within 30 days, and provide an itemized statement of deductions, if any
- Withhold security deposits for unpaid rent and water charges, unpaid real estate taxes that the tenant was obligated to pay and damage in excess of normal wear and tear, only
- Prepare to pay a tenant three times the amount of the original security deposit if the security deposit isn’t returned during the required time period
- Seek damages in legal proceedings if the security deposit is insufficient to cover the losses caused by the tenant
Massachusetts landlords have a right to ask tenants for a security deposit as a condition for entering a lease agreement. Landlords and tenants alike should have a solid working knowledge of the state’s security deposit law and how it applies to them. Landlords have a responsibility to properly maintain and handle tenants’ security deposit as the law requires.
Make sure to refer to Massachusetts General Laws, Chapter 186, section 15B for more on security deposits. Landlords should educate themselves on this topic to protect their rental property and avoid any legal trouble.