I just bought and fixed up a three-family home and am in the process of looking for new tenants. I was planning on requiring security deposits from my tenants, but have heard I should not do that because of all the legal requirements surrounding deposits. What do you recommend? -- James, Springfield
If I had just spent time and money to fix up an investment property, I would insist on security deposits, because even the best tenants sometimes cause expensive damage to apartments. Having said that, you need to understand something about the business you are entering: The job of managing rental property—and especially the process of taking and keeping security deposits—has become one big, legislatively created trap for landlords, and you must tread carefully. If you violate the laws regarding security deposits, you may be liable for triple damages and attorneys fees. Even if a future dispute with your tenant has nothing to do with the security deposit, if you go to court to evict for non-payment of rent, for example, any mistakes you have made in handling the security deposit will be used against you, especially if your tenant is represented by counsel.
There are too many requirements to discuss here, but, among other things, you will need to provide your tenants with a document called a 'statement of condition,' at the beginning of the tenancy or within ten days of collecting the deposit, whichever is later. This document is essentially an agreement between you and your tenant regarding the condition of the unit at the time the tenancy begins, and it is crucial, not only because it is required by law, but because you will need it to justify any claims you make against the security deposit. There are also specific requirements regarding what you do with the deposit while it is in your possession. (Hint: do not spend it on that wide screen television you've had your eye on.) The deposit must be placed in a separate account, with interest (if any) paid to the tenant yearly. You must also inform the tenant, in writing, of the name and address of the bank, the account number, and the amount deposited, all within 30 days of the beginning of the tenancy. Before taking a security deposit, you should thoroughly review Massachusetts General Laws Chapter 186, Section 15B.
Don't misunderstand me. You can manage your property in an effective and profitable manner, but you must protect yourself. The best way to avoid trouble is to develop a routine of forms and procedure that you will follow for each and every tenancy. If I were you, I would find an attorney who works with landlords, ask her to sit with you for an hour and explain the paperwork that you should be using for all aspects of engaging in a tenancy. Also, check out our Books About Massachusetts Law section. There are several useful titles that you can buy and keep by your desk. Good luck.