Residential rental fee collection is governed by M.G.L. c. 186 §15B which is most often cited for the statutory requirements regarding the handling of security deposits. Any misstep regarding the handling of the security deposit will automatically result in penalties, including an award of three times the amount of the deposit plus attorney fees and costs, but mishandling a security deposit is not the only fee collection and retention that can result in serious penalty.
Under the law, the landlord can only request first month’s rent, last month’s rent, a security deposit (each of which cannot exceed the amount of the initial rent charged), and the cost of a new lock to be paid by the tenant. The tenant cannot be asked to pay any other monies or deposits, although a tenant may pay a fee to a licensed broker who was involved in locating the unit. Every so often, this limit is challenged.
Massachusetts Courts have said no to pet deposits and amenity fees and in an unpublished summary decision by the Appeals Court this year shot down a deposit required by a landlord and their management company to reserve a residential housing unit.
In her hunt for housing, the plaintiff, a prospective tenant, reached out to the defendant management company who advised that a deposit was required with her application to reserve the unit. That deposit would be applied to first month’s rent if she was accepted, non-refundable if she was accepted but changed her mind, and returned only if the owner denied her application. Her application was accepted and in the subsequent month, the parties discussed and negotiated lease terms. Ultimately, she changed her mind and decided not to rent the unit, requesting a return of her deposit. Her refund was denied, and the defendants put the unit back on the market.
The plaintiff brought a claim in Housing Court arguing that not only was this a violation of M.G.L. c. 186 §15B it was also an unfair and deceptive trade practice in violation of 93A and she wanted her $3,400 deposit back. The judge agreed; summary judgment for the prospective tenant, awarding treble damages, attorney fees and costs. The Appeals Court affirmed, also awarding additional fees and costs.
The outcome cost the defendants a whopping $62,076.68 in damages, fees and costs. What is scarier than the penalty here (plus defendant’s own legal fees) is that the landlord tried to argue the deposit should be permissible, akin to an earnest money deposit on a purchase contract for real property. They argued detrimental reliance on the accepted application contract, that the deposit represented liquidated damages for the time the unit was off the market and the lower rent ultimately obtained through a subsequent tenant. The judge found that funny. Even the prudent real estate licensee is warned that the residential rental business of real estate is not the same as transaction sales and requires strict adherence to governing laws and regulations.