Security deposit laws are very specific and strict in Massachusetts. Mistakes by landlords are surprisingly common and can be very costly. If you own a multi-family, here are security deposit mistakes to avoid in Massachusetts.
1 – Depositing Funds Into the Wrong Account
Security deposit funds technically belong to your tenants. As a landlord, you are simply holding it for them, just in case it’s needed. Do not deposit these checks into your personal checking or savings account. It cannot be co-mingled with your personal funds. Instead, security deposits must be kept in a special type of account that is protected from your personal debtors. If you’re not sure how to establish such an account, speak to a representative at your bank. Additionally, funds must be placed into an interest-bearing account at a Massachusetts bank.
2 – Failing to Payout Interest
Every year, you must pay out the interest from the security deposit funds to your tenants, even if the lease is extended for another year. The amount can be paid to them separately or via a reduction in rent for the next month. The set interest rate is 5% (as of the year 2020) or the amount actually earned in the account (if it’s less than 5%). Placing each tenant’s security deposit into a separate account can help you better track this.
3 – Not Returning Funds Promptly
After a tenant has vacated a property, you must return security deposit funds within 30 days. If any amounts are deducted to cover damages, you must provide a detailed description of those damages and include receipts for repair costs. One of the most common security deposit mistakes is failing to do both of these things. Landlords can’t blindly assign a value for damages or fail to communicate with tenants. This can lead to bigger issues for landlords down the road.
More on Security Deposit Mistakes to Avoid
It is extremely important to understand your obligations under the law if you’re a landlord. Avoid the most common security deposit mistakes listed above,… better yet, make sure you follow the law to the letter. Failure to do so can have costly repercussions such as a chapter 93A lawsuit where tenants could be awarded triple damages or the inability to sue a tenant for their wrongdoings. The best way to protect your interests and rights as a landlord is to become educated on landlord-tenant laws in Massachusetts.