First/Last/Security - What to Charge?

15 Replies

Hello,

I am reading into what is allowed by the State of Massachusetts for charges such as first/last/security...

I understand that:

1. I can collect a security deposit = to rent

2. This security deposit needs to be placed into a separate interest bearing account

3. I can collect first and last month's rent

However, are there any special rules on what happens with the first/last after it is collected? Can that go straight into my personal checking account/be used for an expense I've been waiting on? Or does it need to be treated in a specific way like the security deposit.

I am thinking of only taking First and Security Deposit and disregarding the Last Month's Rent....any thoughts would be appreciated!

This might sound aggressive, but I think it's important to take what you can up front. In California, it is illegal to take first, last and a security deposit. However, you can take a security deposit up to 150% of rent (please double check that for anyone in California). 

We used to just take first month's rent and a security deposit equal to rent. Unfortunately, we had someone not pay their last month of rent and trash the place despite the fact that you aren't supposed to use your security deposit for your last month's rent. 

I think there is a fine line balance between protecting yourself as a landlord and taking advantage of a tenant. Now we take about 125% of rent for the security deposit. 

Every once in awhile we get some flack for it, but I just respond with that "you're the lucky recipient of my hard lessons learned and it is just not something I can negotiate". We had one guy really push back. He stopped pushing once we offered for him to leave. He was very happy to be in his new place just prior to Fourth of July.

Hopefully this helps!!!

@Steve DellaPelle

You can collect first, last, security, if you would like- 

I would check and see what your direct area is collecting. 

If rents are high- then collecting all three may be a lot for tenants upfront.... 

Security deposits are very specific to handle. You could go to Sauntaunder and have them set up a landlord account. 

@Steve DellaPelle

Gosh, where do we begin?  lol

1. You can only accept lock/key, first, last and sec dep and no other fees. Not even a pet fee.
2. First month - you can deposit into your account and use.
3. Last month - must provide interest too ( I usually get lazy and put it in the sec dep acct). Can not exceed first month total.
4. sec dep account - must provide interest, separate MA account and interest paid out annually. Can not exceed first month.
5. When signing lease and exchanging the funds make sure to perform the walkthrough and provide a "condition of statement" for the unit.
6. when they leave you have 14 or 30 days (check law) to return the sec dep escrow with a detail list of all expenses and copies of invoices.
7. You can not use the sec dep for the last month rent unless the courts says so.

Seeing as it takes forever to evict a tenant, I recommend getting last and sec dep or at least last and 1/2 sec dep.

@Rich N. I was debating this with a friend the other day - I have found nothing in the state laws or anywhere specifically that has said that you cannot charge a monthly fee for having a pet. I know you can't charge extra security deposit for it, but I have not found evidence that you can't charge a "pet fee" monthly. 

I used to live in a commercial building outside of Boston that allowed pets, but charged $75 a month to have them in the apartment. I would imagine if the big guys are doing it then the smaller landlords could as well. 

Thanks so much @Rich N. that's exactly what I was looking for...

Also, I was planning on allowing pets and adding on $25/month...is that the same as a "pet fee" or is it just agreeing to pay a higher rent...@Michael Ruh

Originally posted by @Michael Ruh :

@Rich Ng I was debating this with a friend the other day - I have found nothing in the state laws or anywhere specifically that has said that you cannot charge a monthly fee for having a pet. I know you can't charge extra security deposit for it, but I have not found evidence that you can't charge a "pet fee" monthly. 

I used to live in a commercial building outside of Boston that allowed pets, but charged $75 a month to have them in the apartment. I would imagine if the big guys are doing it then the smaller landlords could as well. 

 Mike,  There is no specific law on the extra rental amount that I know of, but it opens a bunch of potential headaches.  If a tenant questions you on the extra rental and you mistakenly respond back something like its to cover the potential damages, they will say that is covered under the sec dep already (hence illegal to charge more than the 1 month) or at move out, they can say, well there is no damage, so you owe me back everyone of those months. 

Another way a tenant could go after you later in court is to say you charged for a pet rental when by law you can only go after F,L, sec dep and key.....our state!

 In my mind, I would just added it to the actual rental amount and this would even allow you to charge a higher sec dep amount (equaling the month).  So few places accept pets, so if one place charge $2200 and you charge $2250 with the rental listing stating you accept a pet...they will love you for it !

Also, trying to avoid any chance of discrimination cases, why have someone come with a service dog and then say so you are charging me more? We are in a tenant friendly state.

Originally posted by @Steve DellaPelle :

Thanks so much @Rich Ng that's exactly what I was looking for...

Also, I was planning on allowing pets and adding on $25/month...is that the same as a "pet fee" or is it just agreeing to pay a higher rent...@Michael Ruh

 see my response to Michael

Why does the security deposit have to be placed in a separate interest bearing account? As long as you have the cash available to refund the security deposit why the hell do you have to keep it in a  separate account that bears interest? You don't give the extra interest to the tenant...so I don't get the rationale....

@Ned J. Different laws in Massachusetts....and the interest DOES need to be paid out to the tenant annually.

Collecting first, last and security is a valuable screening tool. If you screening standards are high you collect it all.

@Ned J.

As @Steve DellaPelle stated but also, the account is suppose to be a Massachusetts bank account.  Also, by having separate escrow accounts using their SS#, they will get the correct interest and they will have to "pay" the tax on the interest ( I know its a little, but over $10 total and its a 1099 to you).

One last thing, by setting it up as a LL/tenant account using their SS#, it is protected from your creditors.

@Rich N. ....interesting.....none of this applies in CA....at least to the best of my knowledge....hope I'm not missing something....

So you have to set up a separate bank account for each security deposit....what a PITA.....especially when the interest rate at like 1% on typical account, and depending on your property/rent etc average deposits are going to be 1-2k...

@Ned J.

Wait, how can that be...CA is crazy friendly tenant as MA ?  You are so lucky.  We screw it up over here and even miss something like the condition statement and it could be triple damages.

The market is still high warm to hot and even lower income areas with 3 bedrooms can be 1300-1500 and better class areas still get 2500-3500. So triple these numbers and ouch if thy get the right judge.

Originally posted by @Rich N. :

@Ned J.

As @Steve DellaPelle stated but also, the account is suppose to be a Massachusetts bank account.  Also, by having separate escrow accounts using their SS#, they will get the correct interest and they will have to "pay" the tax on the interest ( I know its a little, but over $10 total and its a 1099 to you).

One last thing, by setting it up as a LL/tenant account using their SS#, it is protected from your creditors.

You definitely know your stuff, Rich. Hats off to you. Connecticut has very similar (if not the same?) laws regarding security deposits. They have to be in separate escrow accounts, tied to the SSN of the tenant, for exactly the reason you mentioned - it is now protected from my creditors. How nice of CT to have the tenant's best interest in mind. 

Unfortunately, I'd imagine MOST landlords here don't go to these measures to ensure that the tenants' money is actually safe. 

Again, well done. You are very well studied in this area. 

Filipe

FWIW, my MA attorney has advised me over and over again not to take security deposits... because if your tenant fights in court it will most likely end up in housing court and there you will not win, and if you have been found to "misappropriate" even a few dollars of the sec dep, you can be fined triple damages on the whole amount of the sec dep.

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