Are tenants entitled to interest on security deposits?
This rental guidance was reviewed by the Tenants & Landlords Intelligence Team, specializing in lease agreements, notices, rent disputes, deposits, evictions, and tenant-landlord operational procedures.
Understanding Interest on Security Deposits for Tenants in Massachusetts
When renting a property in Massachusetts, tenants often have questions about their security deposits, especially regarding whether they are entitled to earn interest on these funds. This guide provides a clear overview of Massachusetts law concerning security deposits and the interest tenants may receive.
What Is a Security Deposit?
A security deposit is a sum of money tenants pay to their landlords at the start of a lease. It serves as financial protection for the landlord against unpaid rent, damages beyond normal wear and tear, or other violations of the lease agreement.
Are Tenants Entitled to Interest on Security Deposits in Massachusetts?
Yes. Massachusetts law requires landlords to pay interest on security deposits held for residential tenancies in most cases.
Legal Basis
Under Massachusetts General Laws Chapter 186, Section 15B, landlords must hold security deposits in a separate, interest-bearing account and pay the tenant interest on the deposit annually.
Key Details About Interest on Security Deposits
- Interest Rate: Landlords must pay the tenant the amount of interest accrued at the bank’s passbook savings account rate, not a higher or speculative rate.
- Timing of Interest Payment: Landlords are required to pay the accrued interest annually on the anniversary of the tenant’s lease or within 30 days after the tenancy ends.
- Account Type: The security deposit must be kept in a separate, interest-bearing bank account in Massachusetts or a federally insured institution. The landlord cannot keep the deposit in a non-interest-bearing account or commingle it with personal funds.
- Interest Payments and Withholding: The accrued interest belongs to the tenant, even if the landlord uses part of the deposit to cover damages or unpaid rent. The interest may be used to offset those charges only if the related damages or unpaid rent deductions are lawful and itemized in writing.
Exceptions and Special Circumstances
- Small Deposits: If the security deposit is less than $50, landlords may be exempt from paying interest.
- First-Time Tenants in New Rentals: Landlords might not be required to pay interest if the building is newly constructed and has never been rented before; however, this is uncommon.
- Commercial Leases: The rules about interest on deposits typically apply only to residential leases, not commercial ones.
Landlord Responsibilities
- Notice to Tenant: Landlords must notify tenants in writing about where the security deposit is kept and the interest rate earned on the account.
- Account Records: Landlords should keep accurate records of interest payments and the calculation method used.
- Return of Deposit and Interest: When the tenancy ends, landlords must return the security deposit along with any accrued interest, less any lawful deductions, within 30 days.
Tenant Rights and Actions
- Requesting Account Information: Tenants have the right to ask for written verification from the landlord about the security deposit account and interest accrued.
- Disputes Over Interest: If a landlord fails to pay interest or disputes arise regarding the deposit, tenants can seek resolution through the Massachusetts Consumer Affairs and Licensing Board or in Small Claims Court.
- Withholding Rent or Deposits: Tenants should never withhold rent or security deposits in retaliation for interest disputes without legal counsel.
Summary
For tenants renting in Massachusetts:
- Security deposits must be kept in separate, interest-bearing accounts.
- Tenants are entitled to receive interest at the bank’s passbook savings rate on their security deposits.
- Interest must be paid annually or at tenancy termination.
- Proper documentation and timely return of the deposit plus interest are required by landlords.
Additional Resources
For more detailed information or disputes about security deposits and interest payments, tenants can consult:
- Massachusetts Consumer Affairs and Licensing Board
- Massachusetts Attorney General’s Office website
- Local tenant advocacy organizations
By knowing your rights about interest on security deposits, you can better manage your rental relationship and ensure landlords fulfill their legal obligations in Massachusetts.