Rent Deposits: To Take Or Not To Take?

With the students invading Boston any minute now, it’s a good idea to review last month’s rent and security deposits – one of the most heavily regulated aspects of Massachusetts landlord-tenant law and fraught with pitfalls and penalties for the unwary, careless landlord. In my experience, landlords who handle rent deposits correctly are the exception, rather than the norm.

If you don’t really know the rules for handling last month’s and security deposits, DON’T TAKE THEM. The reason is that any misstep, however innocent, under the complex Massachusetts last month’s rent and security deposit law can subject a landlord to far greater liability than the deposit, including penalties up to triple the amount of the deposit and payment of the tenant’s attorneys’ fees.

If a deposit is necessary, take a last month’s deposit, the requirements of which are less strict than security deposits. Here is an overview of the security deposit law:

Requirements For Holding A Security Deposit

The following steps must be followed when a landlord holds a security deposit:

1. When the deposit is tendered, the landlord must give the tenant a written receipt which provides:
   • the amount of the deposit
   • the name of the landlord/agent
   • the date of receipt
   • the property address.
2. Within 30 days of the money being deposited, the landlord must provide the tenant with a receipt identifying the bank where the deposit is held, the amount and account number.
3. Within 10 days after the tenancy begins, the landlord must provide the tenant with a written “statement of condition” of the premises detailing its condition and any damage with a required disclosure statement;
4. The tenant has an opportunity to note any other damage to the premises, and the landlord must agree or disagree with the final statement of condition and provide it to the tenant.
5. The security deposit must be held in a separate interest bearing account in a Massachusetts  financial institution protected from the landlord’s creditors.
6. The landlord must pay the tenant interest on the security deposit annually if held for more than one year.
7. The security deposit may only be used to reimburse the landlord for unpaid rent, reasonable damage to the unit or unpaid tax increases if part of the lease. Security deposits cannot be used for general eviction costs or attorneys’ fees. Within 30 days of the tenant’s leaving, the landlord must return the deposit plus any unpaid interest or provide a sworn, itemized list of deductions for damage with estimates for the work. Only then can the landlord retain the security deposit.

What Do I Do If The Landlord Mishandles My Security Deposit?

First, talk with the landlord about the situation and respectfully remind him or her of the law’s requirements. Many landlords will balk at the potential penalties for a security deposit violation, and most issues can be resolved amicably, usually with the return of the deposit with interest. That’s always my advice to landlords.

If that doesn’t work, send the landlord a certified demand letter under the Massachusetts Consumer Protection Act, Chapter 93A. If that fails, you’ll have to take the landlord to Small Claims Court which can now hear claims involving up to $7,000 in damages.

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Richard D. Vetstein, Esq. is an experienced Massachusetts residential landlord – tenant attorney. You can contact him at info@vetsteinlawgroup.com.

In a few weeks, the *quiet* streets of Allston, Brighton, Cambridge, Boston and other Massachusetts tenant friendly cities will turn into the zoo that is known as student moving week. So it’s time to review frequently asked questions for Massachusetts landlord tenant rental law.

Screening Prospective Tenants

Landlords can legally ask about a tenant’s income, current employment, prior landlord references, credit history, and criminal history. Your rental application should include a full release of all credit history and CORI (Criminal Offender Registry Information).  Use CORI information with a great deal of caution, however, and offer the tenant an opportunity to explain any issues. Landlords should also check the Sex Offender Registry to ascertain whether a potential tenant could be a safety risk to others nearby. Use the rental application and other forms from the Greater Boston Real Estate Board.

Under Massachusetts discrimination laws, a landlord cannot refuse to rent to a tenant on the basis of the tenant’s race, color, national origin, ancestry, gender, sexual orientation, age, marital status, religion, military/veteran status, disability, receipt of public assistance, and children. It’s best to stay away from asking about these topics.

The Boston Undergraduate Rule

Update: Dec. 2011:  Renting To 4 or More College Students Considered Illegal Lodging House. Click Here to Read More.

Under a two year old Boston zoning ordinance, no more than four (4) full time undergraduate students may live together in a single apartment.  The rule does not apply to graduate students or fraternity/sorority houses. The fines for violating this ordinance are stiff; don’t do it.

While on this topic, landlords should ensure that all roommates are signatories to the lease and are “jointly and severally” liable for rent. That way, if one tenant skips out, the remaining tenants remain liable for the full rent.

Students often create problems for landlords. Meet with students personally before signing the lease and firmly explain a “no tolerance” policy against excessive noise, parties and misbehavior. An ounce of prevention is worth a pound of cure here.

Pets

Subject to some restrictions, landlords may prohibit pets altogether or use reasonable rules to control them on rental property. Under federal law, a landlord cannot prohibit a qualified disabled tenant from using a service pet such as a seeing eye dog. There are also restrictions on prohibiting household pets for federally subsidized elderly and disabled housing project.

More topics, including last month/security deposits and illegal lease clauses, to follow next!

The Massachusetts Supreme Judicial Court ruled last week that a landlord was liable for breaching the implied warranty of habitability when a tenant’s guest seriously injured himself falling from a defective porch. The case is Scott v. Garfield, and can be found here.

What’s the Implied Warranty of Habitability?

The implied warranty of habitability is a multi-faceted legal concept that encompasses contract and tort principles, as well as the State building and sanitary codes. It imposes a legal duty on a residential landlord, in the form of an implied agreement, to ensure that a rental unit complies with the State building and sanitary codes throughout the term of the lease. If a tenant is injured due to the premises being in violation of code, the landlord can be held liable under the implied warranty of habitability. The implied warranty cannot be waived by a lease provision.

The Decision: Extending the Doctrine

In Scott v. Garfield, the SJC extended the reach of the doctrine from tenants to the guests and lawful visitors of any tenant. The injured victim in the Scott case was a friend of the tenant helping out with a move when a defective second story porch railing gave way, sending him falling and seriously injuring his shoulder. The Court upheld a $450,000 jury verdict in the victim’s favor. The Court reasoned:

Our conclusion that lawful visitors, like tenants, may recover for personal injuries caused by breach of the implied warranty of habitability rests, in part, on the expectation that a tenant might invite a guest into his home, and the concomitant expectation that the tenant’s home must be safe for a guest to visit — which together go to the very heart of the landlord’s contractual obligation to deliver and maintain habitable premises that comply with the building and sanitary codes.

OK, So What?

Whether the implied warranty of habitability is in play in a personal injury case makes a huge difference. Personal injury attorneys love the implied warranty of habitability because the defense of comparative negligence is unavailable, unlike a straight-forward claim for negligence. The comparative negligence defense enables a jury to attribute fault to each party in a personal injury case and reduce liability accordingly. This was a factor in the Scott case as the injured guest had been drinking a few beers during the move, and the jury found him 20% at fault, which would have reduced his verdict by $90,000. (How a couple beers impacted the rotting porch is beyond me, I guess he leaned to hard–juries never cease to amaze me). The verdict remained intact, however, because the jury also found that the landlord had violated the implied warranty of habitability. Thus, in cases where the implied warranty is in play, landlords have one hand tied behind their backs as they can’t point the finger at the plaintiff.

Take-Away: Check Your Porches and Your Liability Insurance

This case is yet another harsh reminder that all landlords must not only check their porches, stairways and railing for defects, but procure general liability insurance with sufficient coverage on rental property. I recommend at least $1 Million/person $2 Million/aggregate which would have covered this verdict entirely, plus paid for the attorneys. Another way to limit risk is to get title to residential rental property out of landlords’ personal names and into a new limited liability company or other corporate entity (not a nominee trust).

This decision is not a surprise in light of the court’s prior decisions eliminating old common law rules of liability for different types of people on property (i.e., tenants, guests, invitees, etc.–notably, trespassers remain a category not entitled to added protection). Given the significance of the case and the fact that it went up to the SJC, the landlord in Scott had liability insurance which covered this verdict and the appeal. But if you’re an uninsured landlord on the wrong side of one of these cases, you got a big check to write or a bankruptcy attorney to see.

As always, email me at rvetstein@vetsteinlawgroup.com with any questions.

With the impending influx of renters and students invading the Greater Boston area soon, let’s review some often asked questions concerning Massachusetts landlord tenant law to assist landlords in navigating the rental process.

Screening Prospective Tenants: What You Can and Cannot Ask?

Landlords can legally ask about a tenant’s income, current employment, prior landlord references, credit history, and criminal history. Your rental application should include a full release of all credit history and CORI (Criminal Offender Registry Information).  Use CORI information with a great deal of caution, however, and offer the tenant an opportunity to explain any issues. Landlords should also check the Sex Offender Registry as they can be held liable for renting to a known offender. Use the rental application and other forms from the Greater Boston Real Estate Board.

Under Massachusetts discrimination laws, a landlord cannot refuse to rent to a tenant on the basis of the tenant’s race, color, national origin, ancestry, gender, sexual orientation, age, marital status, religion, military/veteran status, disability, receipt of public assistance, and children. It’s best to stay away from asking about these topics.

Students, especially undergraduates, often create problems for landlords. Meet with students personally before signing the lease and firmly explain a “no tolerance” policy against excessive noise, parties and misbehavior.

Careful screening of tenants is far less expensive than the cost of evicting a problem tenant.

Security And Last Month’s Rent Deposits:  Should I Take One?

I advise landlords not to take security deposits because any misstep, however innocent, under the complex Massachusetts security deposit law can subject the landlord to far greater liability than the deposit. Among other requirements, the security deposit law provides:

• a landlord must give the tenant a written receipt with information as to where the deposit is being held;
• a landlord must hold a security deposit in a separate interest bearing account, and pay interest to the tenant yearly;
• at the beginning of the tenancy, a landlord must provide the tenant with a written “statement of condition” of the rental unit detailing its condition and any damage;
• the tenant may note any damage on the statement of condition
• At the end of the tenancy, if the landlord desires to deduct repair costs from the security deposit, it must provide the tenant with written notification and copies of all estimates within 30 days of the tenant’s move-out.

Under the law, any slip-up on these requirements can subject the landlord to liability for 3 times the deposit plus the tenant’s attorneys’ fees. That’s why I advise my landlord clients that security deposits aren’t worth the money. If you need a deposit, take a last month’s deposit, the requirements of which can be found here in the Massachusetts last month’s deposit law.

Due to the high interest in security deposits, I wrote a full post on the topic.  Click on Massachusetts Security Deposits to view the article.

My Property Has Lead Paint, What Do I Do?

Under the Massachusetts Lead Paint Law, landlords (and real estate agents) must disclose to tenants the presence of known lead paint for property built before 1978. The property must be de-leaded if a child under 6 will live there. That means if a young couple moves into a unit, then has a baby, the landlord must de-lead the property. There is no way around de-leading other than risking a discrimination claim for not renting to families with small children which is illegal. (Of course, many landlords unlawfully reject families with children). Exposing children to lead paint puts a landlord at huge legal risk.  Financial aid and tax credits for de-leading are available to qualified property owners. For all Massachusetts rental property built before 1978, landlords must provide all tenants regardless of family composition with a Massachusetts Tenant Notification and Certification form, and all lead inspection reports and testing information, if available.

Can I Take A Finder’s Fee?

Only a licensed real estate broker can lawfully collect a finder’s fee for bringing together a landlord and a tenant.  Landlords who don’t work with brokers cannot charge a finder’s fee.

For more information, I recommend reading the Landlord’s Guide To the Law by the Massachusetts Attorney General’s Office.