Massachusetts has very strict laws about security deposits and how they must be handled. A recent court case emphasizes how important it is for landlords to understand and fully abide by this law. If you are a landlord in Massachusetts, here’s what you need to know about proper handling of MA rent security deposits and possible penalties for failing to do so.

Proper Handling of MA Rent Security Deposits

Security deposits must be placed into an interest bearing escrow account with a Massachusetts bank. Escrow accounts essentially shield the funds from the landlord’s personal creditors, thereby protecting the tenant’s money. Security deposit funds belong to tenants but are held by landlords. Landlords must therefore not mix this money with their personal funds or personal accounts. Each year, landlords must pay out the interest earned either by check or by reducing the rent in the same amount. Those two things are essential to the proper handling of MA rent security deposits.

Penalty for Failure to Properly Handle Security Deposits

According to MA Security Deposit Law, landlords can be penalized up to 3 months’ rent plus be responsible for paying the tenant’s legal fees if they fail to comply with the law. There are other potential ramifications as well.┬áIn a recent court case, Garth Meikle v. Patricia Nurse, the landlord failed to pay out $3.26 in security deposit interest. The tenant later became delinquent with rent (approximately 3 months behind), resulting in an eviction hearing. The tenant filed a counterclaim regarding the unpaid interest. The lower courts ruled in favor of the landlord, but this was appealed up to the MA Supreme Court which ruled in favor of the tenant. Basically, the landlord’s failure to pay interest on the security deposit was used by the tenant to avoid eviction!

Tenant’s Rights in Massachusetts

Massachusetts is known as a fairly strict state when it comes to protecting tenant’s rights. This recent court case further emphasizes that. As landlords, it is important to fully understand all laws related to rental properties and to follow them strictly. This is the best way to protect your rights as a landlord and to avoid giving tenants an opportunity to take advantage of any loop holes.