As a landlord, what am I allowed to do with a renter’s security deposit before they need it back? Am I able to reinvest it into my property?
In a word—no. In two words, ABSOLUTELY NOT.
Massachusetts tenancy laws are very favorable to residential tenants. This is understandable, as such tenants have their home to lose, but it can lead to frustrating situations when a tenant is uncooperative, remiss in paying rent, or blatantly disrespectful to the property and its furnishings.
The law in Massachusetts allows landlords to collect ONLY ONE MONTH security deposit and the last month’s rent. You cannot collect more in any way directly or indirectly. They cannot prepay rent either. These monies must be kept in a separate, interest-bearing account, with all the relevant details of the bank and the account provided to the tenant within thirty days of move-in. We usually put that language right in their lease so they cannot argue it was not provided.
Tenants are entitled to up to five percent interest on their deposit at least annually If the money is held in a bank with a lower rate, the lower rate will substitute for the 5%. If the landlord is holding the money in a interest free account, the landlord must pay five percent. Additionally, within thirty days of each year’s anniversary, the landlord must either return the interest to the tenant or apply it to the next month’s rent. The landlord must keep the funds in an account that is free from the landlord’s creditors by naming it as tenant’s funds, and can never use that account for the landlord’s own money in any way.
When a tenant moves out, their prepayments must be returned within thirty days or otherwise transferred to their new landlord. Portions of the security deposit can be withheld for damages only when a detailed list of the damages and required repairs is given to the tenant within a month of termination or the tenant moves out, whichever is sooner, submitted under pains and penalties of perjury.
The penalties for mishandling, or inappropriately withholding, a security deposit or other prepayment can be stiff. Tenants are entitled not only to the return of their prepayments, but up to triple damages, attorney’s fees, and court costs. This is NOT up to a judge to award. Once the judge determines the landlord violated the statute, then the judge must award triple damages and reasonable attorney fees and costs. This is true even if the tenant violated the lease terms too.