The security deposit is a common source of contention between landlords and tenants. It is also one of the most heavily regulated aspects of tenant law in Massachusetts.

Security deposits constitute an added safety layer in a very tenant-friendly state. If you are planning on holding a security deposit, here are some things you should know.

Why a security deposit?

A security deposit is intended to protect the landlord against unpredictable tenants. Although the landlord holds this deposit, it remains the property of the tenant.

By law, a Massachusetts landlord cannot charge a tenant more than one month’s rent for a security deposit. As soon as the landlord receives it, they must provide the tenant with a receipt that includes:

• the name of the person who receives the money — if a property manager handles the transaction — and the name of the landlord
• the amount of the deposit
• the date the landlord (or the property manager) receives the deposit

As the landlord, you should also present the tenant with a signed detailed report — within ten days — regarding the rental unit’s condition. This report is known as the Statement of Condition, and it will be used in case of conflict later. The tenant has 15 days to return the Statement of Condition to you, with any additional notes as needed.

Within 30 days of receiving the security deposit, you will need to deposit it in a separate, interest-bearing account in a Massachusetts bank. The deposit should be in your tenant’s name and protected from creditors. You will also need to provide your tenant with a receipt indicating where the security deposit is held and the account number.

Each year, the tenant should receive a receipt reflecting the interest earned on the security deposit. You can either deduct this amount from the rent or pay by cash or check.

The landlord has 30 days to return the security deposit to the tenant after the last day of the lease. You should return it in full and with interest. If you make any deductions, you will need to provide your tenant with an itemized list of the repairs. You will have to provide the estimates and receipts for each and “swear under penalties of perjury” that these are accurate.

When can the landlord keep the security deposit?

The purpose of the security deposit is to provide the landlord with the money necessary to cover potential repairs and holding costs. However, you can’t use it for everything.

You can only deduct repairs from the security deposit if you have a Statement of Condition signed by yourself and your tenant. You can’t use this security deposit for any item mentioned in the statement, even if it has gotten worse during the tenant’s occupancy.

Damages due to normal wear and tear aren’t eligible either: the longer the tenant occupies the unit, the less likely it is that you can deduct the repairs. If you wish to use part of the security deposit to fix an issue while the tenant is occupying it, you will need their agreement.

For any deduction, you will need to provide a detailed receipt. It is tempting to cut the cost and do the repairs yourself. However, hiring a contractor and saving their invoice for your records is the safe way to go.

You will need to hold the repair records for at least two years. These records should include the date of the repairs, a detailed description of the damages, receipts, and itemized list of costs incurred. Statutorily, anyone is entitled to see them.

You can also use the security deposit for unpaid rent and real estate tax increases if agreed in the lease. However, you can’t use it for eviction costs or attorneys’ fees.

Should I ask for a security deposit?

Security deposits should help a landlord protect their property while a tenant occupies it. However, they can become a liability when not handled properly.

If the landlord fails to comply with one of the steps described above, the tenants are entitled to sue for up to three times the amount of the deposit, plus attorney’s fees, even if they still occupy the unit.

Unfortunately, the security deposit may not cover the total cost of the repairs or unpaid rent, leading some landlords to avoid security deposits entirely.

Security deposits often offer little protection against bad renters and can cost you a lot if you aren’t familiar with landlord-tenant law.

Have you had any issues with security deposits? Please leave a comment.