Keeping, depositing, and holding the deposit
A security deposit is the property of the tenant unless a landlord is authorized to use it. Therefore, a landlord must keep a tenant’s security deposit in a separate, interest-bearing bank account in Massachusetts. The landlord must also identify to the bank and the tenant that the accounts have funds that don’t belong to the landlord and are being held in trust (escrow) for the tenant.
Within 30 days of depositing the security deposit, the landlord must give the tenant in writing:
- The name and location of the bank where the deposit is
- The amount of the deposit
- The account number
If a landlord doesn’t hold a tenant’s security deposit in the proper type of account or doesn’t give the tenant notice of where the money is deposited, the landlord loses the right to keep the security deposit. If the tenant requests it, the landlord must immediately return the security deposit to them.
Interest on a deposit
Because a security deposit is the tenant’s property, if the tenancy lasts for a year or more, the landlord must pay interest on the deposit to the tenant. The tenant is entitled to the amount of interest the bank pays on the deposit. However, if the landlord doesn’t deposit the security deposit in a bank, the tenant is entitled to 5 percent interest annually. At the end of each year of the tenancy, the landlord can either pay the tenant the interest or subtract it from the tenant’s next rent payment.
What happens to a tenant’s security deposit if the property changes owners during the tenancy?
If the landlord sells the property or no longer owns or manages it, the landlord must transfer the tenant’s security deposit, including interest, to the new owner or property manager, who is then responsible for holding it. The new owner or manager has 45 days to give the tenant a written notice that they have received the security deposit and to tell them where it is being held.
If the former landlord doesn’t properly transfer the tenant’s security deposit to the new owner or manager, the former landlord is still responsible for returning the security deposit to the tenant. But, the new landlord is responsible for returning the security deposit to the tenant, whether or not they received it from the former landlord (unless the property is now owned by a foreclosing bank or the city/town). The new owner may allow the tenant to not pay rent for the amount of time equal to the amount of the security deposit and interest.
|January 13, 2021