February 10, 2016:
The Law Offices of Joshua N. Garick, P.C. recently filed a lawsuit against two landlords who charged tenants a so-called “tenant bond” instead of a traditional security deposit. According to one of the complaints (viewed here), the landlord used a product called “Sure Deposit” which worked as follows:
-The landlord offered a tenant the opportunity to pay a bond premium of between $100 and $200 instead of a security deposit that could be as much as one month’s rent.
-The tenant bond premium was paid to an insurance company unaffiliated with the landlord.
-If the tenant owed the landlord money at the end of the tenancy, such as for unpaid rent or for damages to the apartment, the bond company would compensate the landlord for those damages.
-After the bond company paid the landlord, it would bill the tenant (and seek to collect through legal action) to recoup the amounts it paid to the landlord to cover the tenant’s damages.
The lawsuit alleged that this violated the Massachusetts Security Deposit (G.L. c. 186, § 15B) for numerous reasons, including:
-The tenant bond premiums were not refundable to the tenant.
-The tenant bond premiums were not held in escrow for the benefit of the tenant.
-The tenant bond premiums were not held in a Massachusetts interest-bearing bank account.
-The tenant bond premiums exceeded the charges a landlord was permitted to charge to a tenant.
Importantly, unlike a security deposit that would either be refunded at the end of a tenancy or used to pay for damages, the bond premium was always forfeited. So while the tenant bond reduced out of pocket costs at the beginning of the tenancy, it would always cost the tenant more money in the end.
If you believe you have paid an unlawful fee to your landlord, including a tenant bond, please CONTACT US to discuss whether your landlord is within its rights to do so.