In November, 2011, a trial court judge in Boston Federal Court issued a decision finding in the case of Hermida v. Archstone that a landlord's acceptance of a non-refundable "amenity fee" violated the Massachusetts security deposit statute. This decision has been heralded by many, including those in the media, as spelling the end of a landlord's ability to charge any amounts other than rent. It has also given rise to a new potential income source for class-action attorneys in the Commonwealth. While this case does present some potentially perplexing and troubling issues for the rental housing industry, the announcement of the death of the deposit may be premature.

The facts involved in this case were extremely simple. The Plaintiffs were residents of an apartment complex that required to tenants to pay an "amenity fee" at the commencement of their tenancy. The fee was properly disclosed to these residents prior to their making the decision to lease. It was explained to the residents as a one-time fee for the use of the fitness center, fire pit, and other amenities. It was not a deposit and was not refundable. It was also not optional (you had to pay it regardless of whether you used the amenities). The landlord did not require any of these residents to pay any other fees or deposits.

The Plaintiffs claimed that the payment of this fee constituted a violation of General Laws c.186, §5B, the Massachusetts Security Deposit statute. This statute provides, in part, that at or before the commencement of a tenancy, a landlord may not require a tenant or prospective tenant to pay an amount in excess of first month's rent, last month's rent, security deposit, and the cost of a new lock. The statute also provides that the foregoing deposits may not exceed the first month's rent (in other words, if the monthly rent is $1,000, each of these deposits may not be more than $1,000). The statute then proceeds to delineate the manner in which each of these deposits is to be disclosed, maintained, and accounted for during the tenancy. For example, the security deposit is required to be maintained in a separate, interest bearing escrow account, free from the claims of the landlord's creditors. A specific receipt is to be provided to the tenant, with statutory language confirming the tenant's rights in relation to the return of the deposit. A form of property condition statement is mandated to insure that the condition of the property is agreed upon at the commencement of the tenancy. Strict penalties, including potential treble damages and attorneys' fees, are imposed against landlords that fail to adhere to the mandates of this statute.

The purpose of this statute, which dates back to 1969, was to deal with the unscrupulous conduct of landlords who were taking these deposits and then failing to either account for them or return them at the conclusion of the tenancy. These "bad" landlords would often take a security deposit and refuse to return it at the end of the tenancy. If challenged, these landlords would force the tenants to file lawsuit against them, knowing that the cost of such a lawsuit would often exceed the tenant's potential recovery. To address this inequity, the legislature enacted this statute, clarifying the fact that these deposits remained the property of the tenants, while also enabling these tenants to recover the deposits (and potentially treble damages) as a deterrent to these unscrupulous actors.

With this background, the question becomes whether this statute prohibits a landlord from charging non-refundable fees in addition to the deposits identified in the statute. In the Hermida case, the Judge found that the strict reading of the statute leads to the conclusion that when the statute says no amounts may be charged other than these specific deposits, it not only refers to other forms of refundable deposits, but also means any other charges or fees. The Court stated that the statute was unambiguous and was to be read as being intended by the legislature to ban any other amounts. The primary argument raised by the landlord was that the statute only set a maximum amount which could be charged, to wit, the total sum three months rent (I.e. a first month, last month, and security deposit). Therefore, since the rent was $1,750 per month, and the amenity fee was only $475 per month, this charge did not exceed the maximum amount permitted by the statute. However, the Court dismissed this argument based on the fact that the statute not only set forth a maximum amount for these deposits, but also clearly delineated the specific forms which the deposits could take. Specifically, only a first month's rent, last month's rent, and security deposit. However, in reaching this decision, the Court noted that there was no case law in Massachusetts supporting this decision. All of the cases cited by the Court were trial level decisions which, under Massachusetts law, were not binding on any other courts. The Court also noted that a Massachusetts Court, including the Supreme Judicial Court, might reach a different conclusion and he invited the parties to seek a ruling from a Massachusetts appellate level court.

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