Security Deposits: To Take Or Not To Take, That Is The Question.

Yeah, well. MA has all sorts of nice complicated laws for both tenants and landlords, but no one follows any of them. If I ever saw a landlord pay annual interest on a security deposit, I'd black out. As I would if I ever saw a landlord be able to evict a nonpaying tenant before he dies from old age.

All these rules favor only bad tenants and bad landlords, because no one else is willing to wait two years to resolve an issue in court. It's only the crooks and the nutjobs who have the appetite for a long, drawn-out fight.

I always pay interest. But I would love clarification of what sort of account to ask for at the bank. The best I've managed to get is an account for the benefit of my tenant. Honestly, when I go to the manager of my bank's branch and ask to open a security deposit account they act as if they've never heard of it, and I get a different set of requirements (W-9 or not for the tenant, i.d. for the tenant, etc., or not) and I've never opened two the same way twice.

Personally, I'd really rather go for the security deposit vs. the last month's rent no matter the hassle because I would MUCH rather have the tenant return the apartment to me in good condition so that I he can get his money back than collect the last month's rent if that's in question. Cleaning and repairing an apartment can cost a lot more than one month's rent sometimes.

By the way, is the interest on the last month's rent still 5%? It used to be that you had to pay that (if the tenant stays for one year or longer) even if you were getting less interest at the bank unless you put it in a separate account. I suspect they've changed that, but I'm curious.

Marcos, that's not the case. I have had a security deposit with my landlord for two years and he followed each and every step mentioned here, including the interest accrued over the time the deposit was held. I disagree with your point of view completely....

Antonio, what are you disagreeing with? That it is an impractical, Herculean task to compel a landlord to pay you annual interest if they don't want to? Based on what--the fact that you never tried it?

Antonio, I'm with you. All of my past landlords who have taken a security deposit have returned it with interest.

Rona, I'd like to say I enjoyed this post and appreciate the practical information being provided. It's a nice change of pace from housing market speculation.

I have had a security deposit with my landlord for two years and he followed each and every step mentioned here, including the interest accrued over the time the deposit was held.

Antonio, I'm with you. All of my past landlords who have taken a security deposit have returned it with interest.

I'm really curious what these posts mean. Did both of you receive a check for interest earned each year during the time you were still living in the apartment? In other words, if you move in on September 1, and stay for two years, you should get an interest check in the mail at the end of the first year, not when you move out.

Neither post says that. But it is what the law requires.

And of course, neither post is responsive to my point that if you do not receive annual interest checks while you are living there, you really have no way to force the landlord to send them. By the time you go to court, you're likely moved out anyway.

Marcus,

If I may, I think Antonio was disagreeing with your assertion that landlords don't pay interest on security deposits. I'd have to disagree with you too. As a tenant, my Boston LL paid the interest on the SD every year. Now, as a LL, I pay my tenants interest on their SD and LMR annually - it's scheduled via my online bill paying.

However, I do agree that the system benefits only bad tenants and bad landlords and harms the vast majority of good tenants and LLs with draconian regulations and civil processes that work at a snail's pace (when they work at all).

I'm really curious what these posts mean. Did both of you receive a check for interest earned each year during the time you were still living in the apartment?

I think I read your original post to mean that landlords don't pay interest period, not that "annual" was an essential modifier. To (sort of) answer your question, I only received checks at the end, but I only stayed two years at the places I was thinking of, so it would depend on when the annual checks are supposed to start. Mr. Vetstein, are the annual payments to start at the end of year 1 or at the end of year 2?

Nancy, I'm glad you and your former landlords paid security deposits annually, and not at the end of the tenancy. Antonio and Dave still haven't spoken to that issue specifically. I know for an absolute fact that some of the largest landlords in Cambridge do not do this. And you'd think if these accounts were so common, Susan's bankers wouldn't be so universally befuddled every time she tries to set one up.

But I'm glad you get my main point. Compliance is pretty much voluntary. If your landlord doesn't bother to pay you annual interest, or send you the appropriate statements, there's really nothing you can do if you want to keep the apartment. We need to stop worrying so much about rules, and start worrying about enforcing them.

"If I ever saw a landlord pay annual interest on a security deposit, I'd black out. "

Break out the smelling salts. I used to get an annual check from my landlord, too.

Dave: Thanks for answering. I think a lot of people don't realize that, yes, the law requires you to send out a check every year, no matter how long you're in your apartment. And people don't realize it because so many landlords don't bother to do it.

There are a lot of things that fall into this category. For instance, take a look at this from the original post:

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.

It's my understanding--please correct if I'm wrong--that if a landlord fails to do this, he can't keep the security deposit at all. It has to be returned, period. I don't see that being enforced much.

David, I advise landlords to pay the interest on the one year anniversary and every year thereafter.
The law provides: "A lessor of residential real property who holds a security deposit pursuant to this section for a period of one year or longer from the commencement of the term of the tenancy shall, beginning with the first day of the tenancy, pay interest at the rate of five per cent per year, or other such lesser amount of interest as has been received from the bank where the deposit has been held payable to the tenant at the end of each year of the tenancy. Such interest shall be paid over to the tenant each year as provided in this clause, provided, however, that in the event that the tenancy is terminated before the anniversary date of the tenancy, the tenant shall receive all accrued interest within thirty days of such termination." Also, you don't have to pay 5%, just whatever rate the bank is providing on the account.

Susan,
I agree that some banks seem rather clueless about these accounts. I'm at the otherwise horrible Bank of America and they seem to know what to do. As I understand it, they need the W-9 and signed signature card from the tenant (and actually are supposed to witness the tenant signing it!), that way the interest will be reported on the tenant's SSN and not yours. Technically speaking, the money is theirs, not yours until the end of the tenancy. But you'd better make sure you send out those interest checks (which came to a stunning $4.32 this year) since the tenant will receive a 1099 form. I used to just allow the tenants to deduct it from the rent (which is allowed under the law), but now I send a separate check so I can prove I sent it. You are allowed to pay the interest received even if it is below 5%.

I would argue somewhat with Marcus' point that compliance is voluntary. If a LL does not pay the interest annually, when the tenant moves out he can demand not only the interest, but the entire SD back. Courts routinely award two to three times the SD for violations of the SD laws. So while annual compliance may be voluntary, tenants can really stick it to a LL at the end of the tenancy.

Is this applicable in a roommate situation where one person (the leaseholder) rents a room to a roommate for a few months?

My landlord does not comply with the deposit and LMR laws. But when we approached them (politely) about it, they said that they'd never had tenants request interest on their deposits or a receipt of any kind. We were told that if we were unhappy, they'd be happy to find new tenants. Since our rent is cheap and our place is beautiful, we feel forced into keeping quiet. Soon after we approached, they sent us a letter asking us to do the routine maintenance (at our own expense) so they wouldn't "have to" raise the rent.

But, like I said, it's a WONDERFUL house and the location is fantastic. For the time-being, the benefits of staying outweigh the risks of fighting it.

David,

Someone should correct me if I am wrong, but both the security deposit interest and last month's rent interest are only applicable to tenancies that last one year or longer. I honestly don't know about roommate situations. I've never read any rules governing deposits in those circumstances.

Why, mildly happy, all you have to do is hire a lawyer ($$$), sue your landlord, get kicked out after he refuses to renew your lease, find another apartment (with a landlord who will also fail to follow the law), wait two years for your case to come up, and then finally, if you're lucky, collect your security deposit and interest two years after your landlord would have just given it to you when you moved out anyway. (Don't forget giving a large share of the security deposit to the lawyer.)

See? These laws are here to protect you.

Incidentally, threatening to increase your rent after you asserted your rights is also illegal. Good luck enforcing that one, too.

@Susan, there seems to be 2 Davids on this thread. I submitted the question at 15. I had a roommate for 3 months (not on the lease) who provided a guarantee deposit of one month's rent. He did not return the keys when he left and I deducted the cost of lock replacement and some household items which he had broken from the deposit and returned the rest which he accepted. The lock replacement was a relatively small sum of about $200. He is now threatening to sue me in small claims court to recover triple the sum of the entire deposit claiming I am in violation of the landlord tenant security deposit law. I saw the relationship as roommates not landlord-tenant. Can he do this?

David,
You can sue anyone for anything. Can he win? Who knows? I don't know the rules governing that relationship.

Actually the interest on the security deposit isn't being paid to the tenant by the landlord, it is what the deposit earns in the bank. Since the deposite is just sitting there for a long time the interest should go to the tenant. It isn't like the landlord is paying it out of their pocket.

Second of all, as a landlord, I have always done these things to the letter because it really isn't all that difficult, either is screening tenants. I doubt there are decent landlords getting anything but great tenants except on the rare occasion. Screening goes both ways. Live in a poorly taken care of building and expect a terrible landlord. Rent to whoever walks in off the street and expect a bad tenant.

to get to what I see as Marcus fundamental point.

Landlord tenant laws in Mass are a disaster. Classic case of how a bunch of well meaning, tenant defending rules have the effect of raising rent, as you'd have to be insane to become a Mass landlord (I've been one) and twice as insane to rent to anyone but yuppies with a gold plated credit rating.

Result - the rental situation we have now.

If a new tenant offers to prepay a full year lease would the landlord be required by law to hold the money in an interest bearing account similar to a security deposit? From a landlord's perspective this would be hard to deny, but on the other hand if the money is mismanaged in any way (like with security deposits) it could be catastrophic charge back to the landlord. I can't understand why a tenant would want to do this, but it has been offered.

I file interest on the security deposit under the category of too much work for me, my tenants and the IRS. Although I do send my tenants off with a parting gift and $20 cash in leu of security deposit interest and tell them I frankly have no idea how much it is but it might not even be enough to buy you a six pack of beer. They always refuse the cash. Yep, Cambridge yuppies have better things to worry about.

I have a situation where it is nearing the end of august and I move out on the 31st. I rented the studio apartment in a panic because i waited until the last minute. when i moved in the apartment was never cleaned, complete mess and some things were left behind from the previous renter. the appartment was obvioulsy not looked over by the landlord nor cleaned. For the firt month I had to fight to get the place cleaned and fixed up. This studio is the smallest I have ever seen and so you can imagine how cluttery and messy it looks w a double bed, couch, desk, coffee table and other peices make it. I am not a neat freak and I am in the process of sorting and packing making the place look even messier. The realtor has contacted the landlord sayig that my place is too messy to get anone to rent it. No its not spotless but I know why people arent renting it, the price is high and the place is tiny. I only rented because I was in a time pinch. Now she as left me a nasty voice mail saying she will hold my security deposit if I dont clean the place in 3 days. how the hell can she do that? I work 3 jobs and am trying to pack, the place wont be clean!