Legal Update for October 2016

Although the case I discuss below is not a new case, it involves a question I was asked twice this month by clients.

Question:  Am I required to open a separate security deposit account for each individual tenant or can I deposit all the security deposits I hold for tenants in one account?

Answer: In in the Appeals Court case of Neihaus v. Maxwell, 54 Mass. App. Ct. 558 (2002), the tenant appealed a judgment by the Housing Court in favor of the landlord.  At the trial in the Housing Court, the tenant had raised a counterclaim against the landlord that the tenant’s security deposit was illegally commingled with funds belonging to the landlord.  On appeal, the Appeals Court affirmed the Housing Court’s decision that a landlord did not violate Chapter 186, Section 15B where the tenant’s security deposit and last months’ rent was deposited in a single account in a Massachusetts bank in which the landlord’s agent held security deposits and last months’ rent for all of the landlord’s residential tenants.  The Appeals Court found that the internal accounting system utilized by the landlord’s agent was adequate to track all of the deposits held in the account and enabled a proper computation of interest due to the tenant.  The Appeals Court further found that the account was maintained separately from the landlord’s operating account (as such operating account contained the landlord’s own funds) and could not be attached by the landlord’s creditors.  The Appeals Court stated “[t]he security deposit provisions of G. L. c. 186, s. 15B are designed to insure that tenant monies are protected from potential diversion to the personal use of the landlord, earn interest for the tenant, and are kept from the reach of the landlord’s creditors.”  Neihaus, 54 Mass. App. Ct. at 561.  Based upon the facts of this specific case, the Appeals Court stated “the risk inherent in commingling – that a landlord might intentionally or inadvertently use tenant funds when accessing the commingled account to pay operating or other person expenses- simply did not exist here.”  Neihaus, 54 Mass. App. Ct. at 562.

Katharine Higgins-Shea, Esq.
Lyon & Fitzpatrick, LLP
14 Bobala Road Holyoke, MA 01040
Phone 413-536-4000
Fax 413-536-3773