When you sell a rental property in Massachusetts, the security deposit is not yours to keep and it is not yours to hand back. Under M.G.L. c. 186 § 15B you have to transfer the deposit, plus every dollar of interest it has earned, to the buyer at closing. The new owner then has 45 days to send the tenant a written notice saying who is holding the money. Skip either step and the old owner can end up owing the whole deposit back, with interest.
This is one of the most expensive details in a Massachusetts rental sale, and it is the one sellers get wrong most often. Here is how it actually works.
Why the deposit is not your money
A security deposit in Massachusetts is the tenant’s money that you are holding for them. Section 15B requires it to sit in a separate, interest-bearing account in a Massachusetts bank, apart from your own funds, with the tenant as the beneficial owner.
Selling the building does not end the tenancy, so it does not end that obligation. The tenancy keeps running under the new owner, and the deposit follows the tenancy. For the wider picture on selling with people still living in the property, see our guide on selling a rental with tenants still in it.
What the seller has to do at closing
Four things, and they all happen at or before the closing table.
1. Transfer the deposit and the interest with it
Section 15B(5) says the lessor shall transfer the security deposit together with any interest that has accrued for the benefit of the tenant to the successor in interest. The money moves to the buyer at closing. It is normally handled as a credit on the settlement statement, but it has to be documented either way.
2. Hand over the paperwork, not just the cash
The buyer needs the amount held, the bank and account where it sat, the date you received it, the interest paid or credited so far, the original statement of condition, and any lawful deductions. A buyer who cannot prove the history of a deposit inherits your exposure, and a good buyer will ask for all of it.
3. Do the same with last month’s rent
If you collected rent for the last month up front, section 15B(7A) treats it much the same way. It gets credited to the buyer with its accrued interest, and the new owner has the same 45-day notice duty.
4. Do not refund the deposit to the tenant
The tenancy is not ending. It is changing hands. Returning the deposit early leaves the new owner holding a tenancy with no deposit behind it, and it can leave you arguing later about money you already gave away.
What the new owner has to do: the 45-day notice
This is the part that catches people. The duty does not end when the deed records.
Written notice to the tenant within 45 days
Within 45 days of the transfer, the new owner must give each tenant written notice that they now hold the deposit, along with the new owner’s name, business address and telephone number.
The new owner owes the money either way
Section 15B says the successor in interest assumes liability for payment of the security deposit to the tenant without regard to the nature of the transfer. In plain English: if the seller never actually handed the deposit over, the tenant can still collect it from the new owner. That is why buyers care about this and why it belongs in the purchase and sale agreement.
If the notice never goes out, it lands back on the seller
Massachusetts Legal Help states the rule the way tenants are told it: if the new landlord does not send that notice by the deadline, the old landlord has to return the deposit, plus interest. A seller who assumed the problem left with the keys can find it coming back.
The interest you owe on the deposit
Massachusetts deposits earn interest at 5 percent a year, or the lesser rate actually paid by the bank holding the money. That interest belongs to the tenant. It is paid or credited each year the tenancy runs, and again when the tenancy ends.
When you sell, the accrued interest travels with the deposit. Do not net it out, do not keep it, and do not guess at the number. Pull the actual bank records and calculate it.
What it costs when this goes wrong
Section 15B has real teeth. Certain violations expose a landlord to damages of three times the deposit, plus interest, court costs and reasonable attorney’s fees. Exactly which failures trigger that is a legal question and it depends on the facts, which is a big part of why this statute has the reputation it does among Massachusetts landlords.
The practical takeaway is simpler: a deposit is a small number that can turn into a large one. Treat the handoff as a real closing item with real paperwork, not a handshake.
A clean handoff checklist
Gather these before you go under agreement, not the week of closing:
- The deposit amount for every unit, and the date each one was received
- The bank name and account where each deposit is held
- Every interest payment or credit already made, with dates
- The signed statement of condition given at move-in
- Any last month’s rent collected up front, and its interest history
- Current leases, or written confirmation of a tenancy at will and the rent day
- A written acknowledgment from the buyer that they received the deposits and the records
If a record is missing, say so in writing before closing. A gap you disclose is a negotiation. A gap the tenant discovers later is a claim.
If you would rather not deal with any of it
Plenty of Massachusetts landlords reach the point where the deposit accounting is just one more thing on a list they are tired of. Selling occupied to a buyer who takes the leases, the deposits and the interest at closing removes the whole problem in one step.
That is the work we do. Premier Fort Properties buys single-family houses, condos, multi-family buildings of all sizes, from two-families and three-family triple deckers up through larger apartment buildings, and vacant land, across Massachusetts and Rhode Island. We buy occupied, and we take over the tenancies as they stand.
Done being a landlord?
Tell us about the building. We take the leases, the deposits and the interest at closing, and you pick the closing date. No fees, no repairs, no cleanout.
Related reading: selling a rental property fast in Massachusetts and how to sell a rental with tenants still in it. If you are also behind on the mortgage on the building, start with stopping a Massachusetts foreclosure.
Massachusetts security deposits and selling: FAQ
Can I just give the security deposit back to my tenant when I sell?
No. The tenancy is continuing under a new owner, so the deposit stays in place and transfers to the buyer with its accrued interest. Refunding it early leaves the new owner holding a tenancy with no deposit and can create a dispute over money you no longer control.
Who is responsible if the old owner never transferred the deposit?
Section 15B makes the successor in interest liable to the tenant for the deposit without regard to the nature of the transfer. The tenant can look to the new owner. That is exactly why buyers ask for deposit records and why the obligation usually gets written into the purchase and sale agreement.
How much interest do I owe on a Massachusetts security deposit?
Five percent a year, or the lesser rate actually paid by the bank holding the money. The interest belongs to the tenant, is paid or credited annually, and travels with the deposit when the building is sold.
Does last month’s rent transfer too?
Yes. Prepaid last month’s rent is handled under section 15B(7A) and follows much the same path: credited to the new owner with its interest, with the same 45-day written notice duty to the tenant.
How long does the new owner have to notify the tenant?
Forty-five days from the transfer. The notice must be in writing and must give the new owner’s name, business address and telephone number. If it does not go out on time, the old owner can be required to return the deposit with interest.
What if I cannot find the records for a deposit I took years ago?
Reconstruct what you can from bank statements and disclose the gap in writing before closing. A missing record is a problem you can price into a deal. A missing record the tenant finds first is a claim, and section 15B allows treble damages plus costs and attorney fees for certain violations.
Does my tenant have to move out because I am selling?
No. A sale by itself is not grounds for eviction in Massachusetts. A fixed-term lease runs with the property and binds the new owner, and ending a tenancy at will requires proper written notice regardless of who owns the building.
Do the same rules apply in Rhode Island?
No. Rhode Island has its own landlord-tenant statute with different deposit rules, and nothing on this page should be applied to a Rhode Island property. We buy in both states, but the deposit mechanics described here are Massachusetts law.
Will you buy a multi-family with tenants and deposits still in place?
Yes. We buy single-family houses, condos, multi-family buildings of all sizes including two-families and three-family triple deckers, and vacant land, throughout Massachusetts and Rhode Island. We buy occupied buildings and take the leases, deposits and accrued interest at closing.
We buy houses. We are not attorneys, and nothing here is legal advice. Massachusetts security deposit law is unforgiving and the details turn on your specific facts, so talk to a Massachusetts real estate attorney before you close.