Massachusetts rent escrow law

Massachusetts Tenant Rent Escrow Bill Set To Pass This Term?

by Rich Vetstein on February 17, 2014

eviction-notBill Would Curb Tenant Abuses of Eviction Process | State House Hearing Set For Feb. 25

For the last decade, Massachusetts landlords have been lobbying for a tenant rent escrow bill which would prevent tenants from using the infamous “free rent trick” in evictions. This may finally be the year that the Legislature passes this much needed reform to curb tenant abuses of the eviction process. Two bills, H.B. 1131 and H.B. 1110, have made their way to public hearing at the State House for a February 25th hearing before the Joint Committee on Housing. Landlords are urged to come and testify before the committee and otherwise support the bill by contacting their local representatives and senators.

The bills are designed to reform tenant abuses of the rent withholding law, including the infamous “free rent trick.” The free rent trick works like this:  Tenant stops paying rent for various reasons, such as economic hardship or by design. After receiving a 14 day notice to quit for non-payment of rent, the tenant will immediately call the board of health to get the owner cited for minor or cosmetic code violations such as a hole in a window screen. Under current Massachusetts law, any code violation cited, however minor, allows the tenant to withhold rent until the eviction case is resolved. What usually happens is that the tenant skips out of town or agrees to a move out but never pays the months of accrued unpaid rent, leaving the landlord stuck with thousands of lost income to pay their mortgage and expenses.

Unlike most other states, there is no requirement in Massachusetts that the tenant post the withheld rent into some form of escrow account. There have been many instances where tenants have intentionally inflicted property damage to claim code violations or just made them up altogether.

A mandatory rent escrow law would require any tenant who exercises their right of rent withholding to pay the withheld rent into an escrow account until the unsafe conditions or code violations are repaired. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. In most cases, the owner will get back most of the withheld escrowed rent. But the most important impact of a mandatory rent escrow law is that those nonpaying tenants who do not escrow can be promptly evicted for nonpayment of rent. Although nonpayment evictions will still take on average three months to resolve, much-longer-delayed evictions and the free rent trick will be stopped.

The bills will most benefit small landlords and owners-occupants of multi-family residences who rent out apartments. These property owners are typically on strict budgets, and any lost rent and attorneys’  fees will prevent them from paying their mortgages, real estate taxes and property expenses, potentially leading to default and foreclosure.

For more information on how you can support these bills, please contact the Massachusetts Rental Housing Association and the Massachusetts Small Property Owner’s Association.

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100316_photo_vetstein (2)-1Richard D. Vetstein, Esq. is a vocal advocate for Massachusetts landlord rights and can be reached at [email protected] or 508-620-5352.

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Why Would Anyone Want To Be A Landlord In Massachusetts?

I just settled a very troubling landlord-tenant case which demonstrates everything which is wrong and unfair with Massachusetts landlord-tenant and eviction law from the landlord perspective. This horror story is played out every Thursday in the summary process sessions of District and Housing Courts across the state. The laws which favor tenants so dramatically were passed decades ago in the 1970’s when tenements and slumlords still existed. Those days are long gone, but the outdated laws remain on the books, giving Massachusetts the well-deserved reputation of being one of the most unfriendly places to own investment property. The time has come to restore some semblance of legal balance between small property owners and tenants.

A Familiar Horror Story

The landlord is a 70 year old woman who rented out her family’s old farm house. The tenants lived there under a month-to-month tenancy at will agreement for 6 years without incident. The owner wanted to move back into the home for financial reasons, so she informed the tenants who immediately started threatening to call the board of health. Mind you, the owner had the right to ask the tenants to leave for any reason at all under a 30 day tenancy at will. The owner was forced to serve a 30 day notice to quit which resulted in the tenants’ immediate report to the local board of health and withholding of rent. The owners were cited for several minor code violations which they addressed promptly, but every time the health inspector came out, the tenant “reported” new alleged problems (likely caused intentionally by the tenants), and often did not allow the inspector to gain access. When the owner started an eviction action, and the tenants predictably shot back with a slew of counterclaims. Because the law is so favorable to the tenants, as I will discuss below, the owner was forced to pay the tenants money to get them to move out. Even though the owner felt she addressed all the issues promptly and competently, the existence of any code violation, however minor, rendered her case “dead on arrival” in Housing Court. To get rid of the headaches and potential liability, the landlord had to pay ransom money and waive the unpaid rent.

Unfortunately, this story is all too common in Massachusetts eviction courts, and something has to be done.

A Legal Minefield For Landlords

For landlords, navigating Massachusetts landlord-tenant law is like walking barefoot through a IED-filled field in Afghanistan. At some point, you’ll likely blow off a leg. Allow me to outline just a sampling of these laws and the penalties for landlords’ non-compliance:

  • Breach of implied warranty of habitability:  The first thing a savvy tenant will do after receiving an eviction notice is call the board of health to get the owner cited for code violations. Any violation, however minor, effectively enables the tenant to live rent-free during the case by withholding rent, and the owner will be compelled to make the necessary repairs while the eviction is pending. There have been many instances where tenants have intentionally inflicted property damage to claim code violations.  Other penalties:  reduction or elimination of rent owed; tenant cannot be evicted; triple damages; payment of tenant’s attorneys’ fees.
  • Breach of quiet enjoyment: This is another tenant favorite claim. It used to be for when slumlords would shut off utilities to tenants, but that rarely happens anymore. I’ve seen this used when tenants are “inconvenienced” by landlords’ repeated attempts to access the premises to make repairs. Penalties:  tenant gets to stay in possession; up to 3 months’ rent or actual damages, whichever is more; payment of tenant attorneys’ fees.
  • Retaliation:  Even if the landlord can evict a tenant at will for any reason, the landlord cannot “retaliate” against them if they make any complaints about property conditions. This is why tenants will immediately start squawking about property issues when faced with eviction, because the retaliation law will protect them even though they are not entitled to lifetime occupancy.  Penalties:  tenant gets possession; up to 3 month’s rent in damages; payment of tenants’ attorneys’ fees.
  • Security deposit/last month’s rent violations: Oh, where do I start on this one. As I’ve written about extensively here, Massachusetts landlords need a Master’s degree in Accounting to comply with the Security Deposit law and all of its procedural traps. From giving a special receipt and statement of condition, to putting the money in a special separate account, to paying interest every year, even one minor slip up will subject the landlord to mandatory triple damages and payment of tenants’ attorneys’ fees. This can torpedo an eviction case from the get-go.
  • Consumer Protection/Chapter 93A:  If all these minefields weren’t bad enough, at the end of the day, tenants are allowed to claim that any of the above warrants an award of triple damages and attorneys’ fees under the Mass. Consumer Protection Act.

Time for Meaningful Legal Reform

As I mentioned earlier, the vast majority of the laws protecting tenants were passed in the 1970’s when rental housing was far more problematic than it is now in 2012. Due to political pressure from tenant activists and liberal groups, lawmakers have been reluctant to level the playing field. Unfortunately, these draconian laws disproportionately hurt the small property owners who own 80% of the rental stock in Massachusetts. Laws which make investing and managing rental property hurt the economy and result in higher rents. There are several bills pending at the State House which will provide landlords with more incentive to own rental property in Massachusetts. The most sensible proposal is the much-awaited rent escrow law.

A.      Rent Escrow

Massachusetts is one of the minority of states which does not have some form of rent escrow law. The need for one is absolutely critical because without it landlords incur large losses when the tenant’s defensive claims of “bad conditions” turn out to be minor, nonexistent or, worse yet, the result of intentionally inflicted damage to the property by the tenant in order to live rent-free.

A mandatory rent escrow law would require any tenant who is claiming rent withholding to pay the withheld rent to a local court month by month until code violations are repaired. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. In most cases, the owner will get back most of the withheld escrowed rent. But the most important impact of a mandatory rent escrow law is that those nonpaying tenants who do not escrow can be promptly evicted for nonpayment of rent. Although nonpayment evictions will still take about three months, and owners will lose about three months of rent, much-longer-delayed evictions and the free rent trick will be stopped.

B.      Security Deposit Reform

Presently, the security deposit law provides mandatory triple damages and payment of tenants’ attorneys’ fees for a violation however minor. The law should be reformed to provide a safe-harbor and discretionary penalties for when landlords make a good faith effort to comply but get caught up in the procedural mess, like for example if they put the deposit in a savings account instead of a special deposit account.

C.      Remove Automatic Possession For Tenants

Presently, the law is drafted so that if a tenant prevails on any number of claims for property conditions, etc., they most likely cannot be evicted. This is especially unfair in the tenancy at will context where the landlord does not need any reason to evict a tenant. The result is that tenants get free passes and occupancy for life as long as they can dig up a counterclaim or two. This needs to be changed.

What Property Owners Can Do: Lobby and Speak Out

The tenant community, backed by well-funded public interest legal services groups, have a strong lobby at the Legislature and love to portray these issues as a form of “class warfare.” In the end, however, everyone gets hurt, because if it’s more expensive to own rental property in Massachusetts, those costs will be passed on to tenants.

Property owners should support the lobbying efforts of the Massachusetts Rental Housing Association and their local chapter. The Small Property Owners Association has a good page on how to lobby your local elected officials. Here is a list of all pending rent escrow and landlord-tenant reform bills up at the State House. Senate Bill 779 is the major piece of legislation to bring up.

Visit your local legislator’s office during office hours and speak to them (or their aids) about your concerns on the issues. In many cases, they won’t know about the bills and you will have to educate them. Send letters and emails to your legislators identifying the bill numbers and explaining why you support or do not support these bills. Go to fund raisers for your Representatives and Senators. Let them know that you vote and that you want your vote to count!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate and eviction attorney. For more information, please contact him at 508-620-5352 or [email protected].

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