In a decision rendered by the Appeals Court of Massachusetts (Gallo, Trustee v. Marinelli), the court has concluded that statutory interest earned on a last month’s rent payment received by a landlord from a tenant need not be paid.
The facts of the case regarding this issue were undisputed. At the time the landlord and tenant entered into a lease, the tenant paid the landlord $1,350 in advance for his last month’s rent. The landlord deposited that money into a non-interest-bearing account.
As a result of a dispute between the parties about damages to the tenant’s basement apartment caused by a faulty fire hydrant, the tenant did not pay his monthly rent.
The landlord filed an eviction action against the tenant in Housing Court seeking possession of the apartment and the amount of the rent owed. The Housing Court judge concluded that the tenant owed the landlord the rent, but the amount of the rent owed was offset by the landlord’s interference with the tenant’s right to quiet enjoyment of the property as a result of the water damage.
The judge also concluded that the landlord was liable for failure to pay the tenant interest on the deposit of his last month’s rent, which the judge doubled, pursuant to the Consumer Protection Act Chapter 93A.
The Massachusetts statute provides that a landlord shall “pay interest at the rate of five per cent per year or other such interest as has been received from the bank where the deposit has been held.” The judge reasoned that the statute was intended to compensate the tenant for the loss of the use of the money (the last month’s rent) for a significant period of time, and interest will accrue on the money being held, and the judge further held that a landlord cannot avoid the intent of the statute by choosing to use a bank that does not pay interest.
The Appeals Court, however, took a different view, and held:
- the intent of the statute is not to compensate the tenant for loss of his money;
- the deposit of last month’s rent, with certain limitations, is the property of the landlord and not the tenant; and
- the landlord is not required to set aside the last month’s rent or place it in a bank account; however, he is required to pay interest on it at 5% or any lesser rate paid by the bank, if the money is in fact deposited in an interest account.
In conclusion, the Appeals Court held that only when the landlord places a last month’s rent in an interest bearing account is the tenant entitled to interest. The Housing Court judge’s order awarding interest on the deposit and the corresponding award of double damages was therefore vacated.
Please note that the decision by the Appeals Court does not change the requirement of a landlord to deposit a security deposit into an interest-bearing account for the benefit of the tenant.
About Mark Lichtenstein
Mark Lichtenstein is a founding partner of Kerstein, Coren and Lichtenstein, LLP, Chair of the Real Estate Practice Group, and a member of the Estate Planning, Probate, Elder Law and Taxation Practice Group.
You can reach Attorney Lichtenstein at 617-964-9393 or at mlicht@kcl-law.com.