One of the worst things that a landlord could ever experience in his business is receiving legal complaints and lawsuits from their tenants. Other than rent issues and eviction disputes, legal conflicts often arise due to the mishandling of security deposits.

A security deposit is a sum of money that a tenant would entrust to a landlord at the beginning of a leasing agreement. Typically, this will be returned to the tenant at the end of the occupancy period, provided that the tenant did not violate any of the terms in the leasing agreement. This is different from the rental fee that the tenant would pay the landlord per month (or on the agreed schedule of payment).

Since a security deposit is usually the first payment given by a tenant to a landlord, it is important for every landlord to know how to legally handle the money.

If you’re an agent or property owner renting out your units in Massachusetts, you need to be familiar with the legal policies involved when it comes to security deposits as stated in the Massachusetts Landlord-Tenant Law.

• A landlord is not required to collect a security deposit. However, that would be a risk on your part because you don’t have any guarantee that your tenant will not violate the stipulations in your leasing agreement.

• It is illegal to overcharge on security deposits. Deposits must not be worth more than a month’s rent.

• Security deposits must be deposited in an interest-earning bank account in Massachusetts. It is prohibited to deposit your tenant’s security deposits to your personal bank account or commingling it with your other assets. The interests accumulated from the security deposits will go to the tenant.

• Upon receipt of security deposit, a landlord must give the tenant a move-in statement of condition – a signed document that details the current condition of the leased property (including existing damages) on the start of the tenancy. This must be given by the landlord upon receiving the security deposit, or within 10 days after the start of tenancy, whichever comes later. The law states what should be written in a move-in statement and what to do if a tenant has objections.

• If a landlord sells the leased property, the security deposit must be transferred to the new owner. The tenant should be informed of the change of ownership.

• A landlord may withhold security deposits after the leasing contract ends if the tenant has unpaid rent and unsettled utility bills, caused damage to property, committed a breach of lease, or has unpaid real estate taxes accounted to him (pursuant to a valid tax escalator clause stated on the lease). However, in cases of deductions, the landlord is obligated to give an itemized list of damages, repairs done to fix said damages, as well as receipts and bills to prove existence of damages and repairs. It must be delivered within 30 days after the tenant vacated the property.

• Any violation of the Massachusetts Landlord-Tenant Law could lead to legal consequences. The law protects both tenants and landlords. Both parties have the right to take legal action should there be violations of the law.

KNOW THE LAW BEFORE DOING BUSINESS

After posting your listings to property management websites like Padleads.com, you will surely be contacted by a lot of interested occupants. However, you have to make sure that before you start closing deals, you are fully aware of how to legally handle the security deposits that future tenants will entrust to you so that you don’t have to suffer legal consequences in the future. Learning all real estate laws that apply to your area of business should always be the first step you’ll take as a landlord to ensure success.