The landlord's security deposit, from collection to return

What you may collect at move-in

Massachusetts limits what a landlord, or the landlord's agent, can require at or before the start of a tenancy to four items: the first full month's rent, the last full month's rent at the same rate, a security deposit no larger than the first month's rent, and the purchase and installation cost of a lock and key. The statute does not allow other amounts to be required at that stage.

Last month's rent and the security deposit are different payments with different rules. Last month's rent is rent paid in advance: it needs its own receipt stating what it is for, and it also earns interest. The security deposit secures unpaid rent and damage, and it carries the bank, condition statement and return rules described below. Keep the two apart in the lease, the receipts and your books.

The receipt on the day you take the money

When you, or an agent acting for you, take a security deposit, give the tenant a receipt at that moment. The statute lists what it must show: the amount, the date received, a description of the rented premises, and the name of the person receiving it, plus the landlord's name if an agent received it. The person who received the money signs it.

Keep a copy. The statute also requires you to keep copies of every receipt and condition statement in your deposit records, which are covered in the last section of this guide.

Holding the deposit at a Massachusetts bank

The deposit remains the tenant's property. It cannot be mixed with your own money, and it must be held in a separate, interest-bearing account at a bank located in Massachusetts, set up so that your creditors, including a foreclosing lender or a bankruptcy trustee, cannot reach it, and so that it can be transferred to a later owner.

Within 30 days after you receive the deposit, give the tenant a second receipt showing the name and location of the bank, the account number and the amount deposited. The 30 days run from the day you received the money, not from the day it reached the bank. If the account or the bank receipt does not meet these requirements, the tenant is entitled to the immediate return of the deposit, and a landlord who fails to deposit the money as required also loses the right to keep any part of it.

The statement of condition and the tenant's reply

When you accept a deposit, you also owe the tenant a separate written statement of the unit's present condition. It is due when you receive the deposit or within 10 days after the tenancy begins, whichever is later. It must list existing damage in full, including any violations of the state sanitary or building codes that a board of health or building official has certified or a court has decided, and you or your agent sign it. The statute prescribes a notice in 12-point bold type at the top of the first page; use that wording exactly.

The tenant has 15 days from receiving the statement or from moving in, whichever is later, to sign it or attach a signed list of additional damage. If the tenant sends a list, you have 15 days from receiving it to return a copy with either your signed agreement or a clear statement of what you disagree with.

This document matters at move-out. Damage listed in the statement, or in a tenant's list that you signed, cannot be deducted from the deposit later unless you repaired it in the meantime and can show that the new damage is unrelated and was caused by the tenant or someone the tenant is responsible for. Dated photos taken on the same walk-through make the statement easier to stand behind, though they do not replace it.

Interest each tenancy year

If you hold the deposit for one year or longer from the start of the tenancy, interest runs from the first day of the tenancy at 5 percent a year, or the lower amount the bank actually paid. It is counted by tenancy year, from the start date of the tenancy, not by calendar year.

At the end of each tenancy year, give or send the tenant a statement showing the bank's name and address, the deposit amount, the account number and the interest you owe. At the same time, either pay the interest or tell the tenant in writing that it may be deducted from the next rent payment. If 30 days pass after the end of the tenancy year without either, the tenant may deduct it from the next rent.

If the tenancy ends before an anniversary date, the statute requires all accrued interest to reach the tenant within 30 days after it ends. Whether and how interest is owed on a deposit held for less than a full year is a question for a lawyer, not one to settle by assuming a flat 5 percent.

When the property is sold or transferred

A sale, assignment, death, receivership or bankruptcy does not turn the deposit into the seller's money. The landlord transfers each deposit and its accrued interest to the successor, and from the date of transfer the successor is liable for holding and returning it under the same statute. Granting a mortgage is not a transfer for this purpose.

Within 45 days of the transfer, the successor must notify each tenant in writing that the deposit was transferred and is now held by the successor. The notice gives the landlord's name, business address and business telephone number, and the same details for any agent. The statute does not list bank details among the contents of this notice; the annual interest statement still has to show them.

The prior landlord stays liable until the deposit has been transferred and the tenant notified in writing, the successor has complied, or the deposit has been returned. If the prior landlord never transfers it, the successor generally takes on liability for it anyway, with limited exceptions for certain lenders and municipalities. A seller of a rented property should hand the deposit list, bank records and condition statements to both attorneys early, so the deposits are accounted for separately from the sale proceeds.

Returning the deposit within 30 days

The 30 days start when occupancy ends under a tenancy at will, or when the tenancy ends as stated in a valid written lease. A tenant who moves out before the lease ends does not automatically start the clock. Within those 30 days, return the deposit with any interest not yet paid, minus only the deductions the statute allows.

Those deductions are limited to: unpaid rent or water charges that were not validly withheld or deducted under law; unpaid real estate tax increases the tenant owes under a tax escalation clause that meets section 15C; and a reasonable amount to repair damage caused by the tenant, someone under the tenant's control, or someone on the premises with the tenant's consent, excluding reasonable wear and tear. The statute allows no deduction for any other purpose, so a routine cleaning fee, a management charge or other bills cannot be added to the list.

For damage, within the same 30 days give the tenant an itemized list, sworn by you or your agent under the pains and penalties of perjury, describing in precise detail the damage and the repairs needed, together with written evidence of the actual or estimated cost, such as estimates, bills, invoices or receipts. Missing this list in time costs the landlord the right to keep any part of the deposit, and some failures, such as not returning the balance on time, can also lead to damages of three times the amount owed plus court costs and attorney's fees. Which consequence applies in a given case is a question for a lawyer.

The deposit record and a sample ledger

Every landlord who accepts a deposit must keep a record containing a detailed description of any damage to each unit for which a deposit was accepted, returned or sued on; the date the responsible tenant's occupancy ended; whether repairs were made, with their dates, costs and receipts; and copies of every receipt and condition statement given to the tenant. Keep it for two years after the tenancy ends, and make it available during normal business hours to a tenant or prospective tenant who asks to inspect it. Wrongfully refusing that request entitles the tenant to the immediate return of the deposit with interest.

The ledger below combines those required items with the dates from the earlier steps, so one row per tenancy shows what has been done and what is due. The layout is a working suggestion; the legal duties are the ones described above.

• Tenant, unit and lease start date
• Deposit received: date, amount, person who received it; day-of-payment receipt given (date)
• Last month's rent, if collected: amount, date, receipt given (tracked separately from the deposit)
• Bank: name and location, account number, date deposited; bank receipt sent to tenant (date, within 30 days of receiving the deposit)
• Statement of condition given (date, at receipt or within 10 days of the start, whichever is later); tenant's reply received (date); your response to any tenant list (date, within 15 days)
• Each tenancy year: year-end date, rate applied (5 percent or the bank's lower actual amount), interest paid or deduction notice sent (date)
• If the property is transferred: transfer date, deposit and interest transferred, successor's notice to tenant (date, within 45 days)
• Tenancy end date and 30-day return deadline
• Damage: description, repairs made, dates, costs, receipts; sworn itemized list sent (date)
• Settlement: deposit plus unpaid interest, minus permitted deductions by category, equals amount returned (date sent)
• Keep the record until: two years after the tenancy ends