Rental law: What fees a landlord may charge, and what to do with the funds.

Originally published on The Law Office of Andrew Lynn web site at http://wp.me/p4HBwE-2i


In the past few weeks I’ve seen a surprising number – at least half a dozen – of instances of Massachusetts landlords violating state law by either charging a prohibited fee, or failing to correctly account for a tenant’s security deposit. The rules here are firm but straightforward, so here is a short overview that I hope will prove informative to landlords and tenants alike.

As usual, this overview applies in Massachusetts only, and is for educational purposes, not legal advise. If you have any questions or want to know how the law would apply in any particular situation, please contact me directly at andrew@andrewlynnlaw.com or through one of the contact forms on this site.


Fees a landlord may charge

First: While processing a prospective tenant’s application, a landlord or a landlord’s agent may require a credit check, and may charge a reasonable fee to cover that expense. Even if the applicant’s real estate agent has already run a credit check, the landlord is not required to accept it and may require an additional check.

Second: Once an application is accepted, upon execution of a lease a landlord may charge:

1. First month’s rent.
2. Last month’s rent.
3. A reasonable fee to cover the actual cost of keys and changing locks.
4. A security deposit, which may not be more than one month’s rent.

Third: Each month the landlord may require payment of rent, except of course the first and last months if those rents have already been paid.

That’s it!

No other fees or deposits are allowed. There is no “rental deposit” permitted under Massachusetts law, nor is there a “pet deposit”. There is no facility fee, and fees for parking or gym use may only be charged if those are optional services that the tenant is free to not accept. If the landlord wants the tenant to pay for any of these things, they must be rolled into the monthly rent. Don’t try to get too clever on this either. For example, doubling the first or last month’s rent to cover extra expenses doesn’t work. The rent must be the same each month, with a few exceptions (such as offering free months as an incentive to sign a multiyear lease, which is something that some larger buildings have offered lately).

What to do with the funds

Note: This information is not complete: for example, the explanations of paperwork a landlord gives a tenant are an outline only, because the law includes redundancies and specific required language that would make this post excessively long.

1. The landlord may keep the first month’s rent.
2. The landlord must give the tenant a receipt for the last month’s rent and must deposit that rent in an interest-bearing account. The landlord must keep an accounting of the interest earned, and at the end of the lease (or the end of each year of the lease, if the lease is for more than one year) must send the interest to the tenant.
3. The landlord must use the lock and key fee, if any, to pay for locks and keys.
4. The landlord must deposit the security deposit into a separate, segregated, interest-bearing account, and provide the tenant a receipt. Again, the interest will go to the tenant.

Security deposit rules

The security deposit is only for repairing damage caused by the tenant, so if the landlord charges one the tenant must be given a statement of the initial condition of the apartment – and the tenant may also give the landlord a list of any damage that is present at the start of the lease, to avoid being charged for it later. If the landlord uses security deposit funds to pay for any repairs, the landlord must keep records of the work done and the amount paid.
Any security deposit funds not used to pay for repairs must be refunded to the tenant within 30 days of end of lease. That’s a firm requirement. Landlords: Don’t use security deposits to pay for cleaning, or for regular maintenance and upkeep, or to make up for any unpaid rent! If there is unpaid rent, feel free to write the tenant a bill but send the security deposit back anyway. If the tenant says “I don’t want to write a check, you can just keep my deposit instead,” you reply “Sorry but no, I can’t do that.”

Stay out of trouble

A majority of the landlord-tenant disputes I see relate to violations of these rules. Follow them strictly, and you will avoid a lot of expensive, time- and resource-consuming trouble.

The new Massachusetts retainage law is now in effect

A reminder to all of you with construction projects in progress or planned in the short term.
Note: This article is for your information only. It is not legal advice. This information applies only to projects in Massachusetts. If you have specific questions, please send me a message at Andrew@AndrewLynnLaw.com or call 617-702-4045.

The new Massachusetts law on subcontractor retainage the I wrote about earlier is in effect, as of November 6th. Some of the key points:

Caps on retainage: Total retainage is now capped at 5% of the payment due. There are also specific caps for specific deficiencies, of example 2.5% of the contract value for incomplete document deliverables.

Payment timing: There are new timing requirements. For example, retainage most now be invoiced within 60 days following substantial completion, payable within 30 days of invoice receipt, with an allowance of 7 days per level of subcontract.

Substantial completion timing: The prime contractor must give notice of substantial completion within 14 days of actually achieving the substantial completion milestones.

Punchiest timing: The owner must submit the punchiest to the prime contractor(s) within 14 days of acceptance of substantial completion. The prime must provide the punchiest to its subcontractors within 21 days of acceptance of substantial completion.

Remember that these new requirements are statutory, so update your contracts.

Mechanic's Liens for Architects: A Way to Enforce Payment

Today’s post is on the mechanic’s lien, which is a valuable tool that contractors and material suppliers have relied on for years in forcing payments from delinquent property owners. What is not well known is that in some jurisdictions, including Massachusetts (since a 2010 revision to a state law) architects and other designers may also use mechanic’s liens.

Please contact the author at Andrew@AndrewLynnLaw.com if you have any questions on this subject.

As always, these are just introductions and overviews, not legal advice. If you have specific questions, or need a new contract, talk with a lawyer. I am a Massachusetts attorney and I default to Massachusetts law; some of the information in my blog posts will inevitably be incorrect in other places. Due to the requirements under the various state statutes that set the rules for mechanic’s liens, it is possible to lose the right to file one by failing to take timely actions and missing a deadline, therefore if you believe that you will need to use this process, please consult a lawyer in your state without delay.

What is a Mechanic’s Lien?

A mechanic’s lien is a lien against a property (a building or land) that secures payment for work done on that property. In extreme cases, the party to whom payment is owed may foreclose on the property and force a sale to recover payments.

Traditionally, these liens have been used by contractors against nonpaying owners. However, in Massachusetts a failure of payment is not a prerequisite to a mechanic’s lien filing. Instead, a party that is eligible to file a mechanic’s lien may do so at any time prior to certain deadlines that relate to the dates when the work was performed and the substantial completion date.

How Does This Apply to Architects?

For simplicity, I’m going to refer to the “architect” here, but this applies to whatever design professional has the prime contract with the owner - so an interior designer, engineer, etc., who contracts directly with an owner has similar rights (but check with your lawyer if you are unsure whether this applies to you!)

An architect may unilaterally file a mechanic’s lien when the following requirements are met:

1. The architect and the owner have a written contract for design services. This is one of many reasons why I advise architects to always use written contracts.
2. The architect files a notice (more on that below) before (i) 60 days after substantial completion or (ii) 90 days after the architect or any of the architect’s employees, consultants or other parties under the architect’s direction last performed services on the project - whichever comes first.
3. The architect notifies the owner directly that the lien has been filed.

The notice states that the owner of the property and the architect have entered into a contract for professional services. It must be filed at the local registry of deeds, and must use language similar to that provided in the statute and include the parties to the contract, date of the contract and a description of the work.

Then What?

The lien, on its own, doesn’t do much. Notice that the filing in the registry does not have to include a statement that payments are owed, and may be filed as a matter of formality even before any design services are performed, so long as there is a written contract between the architect and the owner.
If the architect wishes to make the lien enforceable against the owner, the architect must make a second filing at the registry of deeds. This second filing identifies the owner and property, and contains a statement of the amount due and any credits. The deadline to file is (i) 90 days after substantial completion or (ii) 120 days after the architect or any of the architect’s employees, consultants or other parties under the architect’s direction last performed services on the project - whichever comes first.

The second filing is critical, because if the architect does not make this second filing, the lien is automatically dissolved and the architect loses it entirely.

What You Get For All This

If the architect has made all of the appropriate filings and the owner has failed to make payments, the architect may go to court to request a judicial foreclosure on the property. Many architects would consider that a drastic action and would strongly prefer to stay out of court. Even so, the lien gives the architect some strategic or tactical advantages:

1. The fact that the architect has the right to sue is strong leverage against a delinquent owner.
2. If the owner sells the property before the architect is paid, the lien follows the property. The effect of this is that a purchaser of the property is likely to demand that the owner pay the architect as a condition to the sale.
3. If the owner declares bankruptcy, the lien gives the architect a stronger position than that of an ordinary creditor and makes it more likely that the architect will collect payment.

What About Consultants?

Design professionals working as consultants for architects may also file mechanic’s liens, provided that a few conditions are met:

1. The architect (or whichever design professional has the prime contract) must be eligible to file a mechanic’s lien. This means that the architect must have a written contract and the deadlines must not have passed.
2. The owner must have approved the use of the consultant in writing. Your lawyer will need a copy of the architect’s contract with the owner and any other written correspondence relating to consultants to ensure that the architect has the owner’s approval to hire consultants.
3. The consultant must include the contract price or an estimate of the cost of the consultant’s work, as well as payments already received, when filing the lien.
4. The consultant must notify the owner directly that the lien has been filed.

Why are the requirements different for consultants? Consider that the usual relationship of a consultant to a project is that of a subcontractor to the architect. The consultant has no contract with the owner and paying the consultant is not the owner’s responsibility - it’s the architect’s duty to pay the consultants. Requiring a written authorization from the owner to the architect to use consultants means that the owner has fair warning that there may be a consultant with a right to file a lien, which the owner might take into account when negotiating the contract with the architect.

New Massachusetts law limits subcontractor retainage to 5%

Andrew Lynn, Esq.
Massachusetts Attorney

Massachusetts passed a law this month limiting retainage of payments to subcontractors to 5% of the subcontractor’s price.

Retainage is the withholding of a portion of a subcontractor’s payment until completion of the overall project - or even months later - and is common practice even when the subcontractor’s work is finished at an early stage of construction. Currently, a normal operating procedure in the industry is to withhold 10% of the subcontractor’s fee. (In fact, on some projects controlled by federal regulations, 10% is required.) Developers and contractors say that this withholding is necessary leverage in case a problem is found after the subcontractor’s task is complete, and the subcontractor must be called back to repair or finish the work.

So, for example, if the subcontractor is involved in the foundation or steel framing, and finishes the work one year before completion of the project, that subcontractor must wait that year - while plumbers, electricians, finish framers, drywallers, lighting installers, masons, landscapers, etc., etc., finish their tasks, before receiving the final payment. Subcontractors argue that this withholding is unfair, because the subcontractors incur labor and materials costs at the time they perform the work and need those payments if they are to make any income. They also argue that retainage is not necessary, because good relations with contractors and developers are fundamental to their business and the need to keep their clients happy is enough incentive to bring them back to a job site.

The new law takes effect in November. It applies to projects costing $3 million or more, and sets a timetable for subcontractor payments. While the ripple effects have yet to be seen, the halving of retainage will have some effect on the cost of financing, as owners, contractors and developers will have to be in possession of a larger percentage of their funding at an earlier stage. Whether the decrease in retainage will cause a corresponding increase in the number of subcontractors who refuse to return to an old job is yet to be seen.

As always, these are just introductions and overviews, not legal advice. If you have specific questions, or need a new contract, talk with a lawyer. I am a Massachusetts attorney and I default to Massachusetts law; some of the information in my blog posts will inevitably be incorrect in other places.

Copyright authorship and the curious case of "monkey selfies"

I almost titled this post: "Monkey selfies" prompt new editions of law school textbooks, profit projections soar.

The latest hot IP story is about the copyright status of “monkey selfies” - which are, as the name implies, self-portrait photographs shot by monkeys.

I’m a sucker for a good copyright law head-scratcher, so here’s an overview of the situation and my take on it, as a lawyer and a photographer who’s not involved.

Spoilers:

I’m casting my vote for the photographer, though not for the reasons he states. To explain my reasoning will take a page or two of explanation, because this is really more complicated than either side would have it seem.

The back story:

UK-based professional photographer David Slater traveled to Indonesia to photograph wildlife. While he was setting up a shoot of some crested black macaque monkeys, one of the monkeys used his camera to take more than 100 photos, which included a couple of very marketable selfies.

Some details are unclear. In one version of the story, Slater was setting up for the shoot when the monkey, acting on its own (and surprising Slater), picked up the camera and started shooting. In another version, Slater was trying to get the monkeys to take selfies by first spending days befriending the simian locals, then setting up the camera and enticing them to play with the shutter release.

The photos were published, in print and online, with Slater’s permission, back in 2011 and 2012.

The controversy:

A Wikipedia user uploaded two of the monkey-taken shots to Wikimedia Commons, an open-source sharing site affiliated with Wikipedia. As I write this, the images can be seen there at the Macaque page. Wikimedia believes that there is no copyright violation. In the words of the image caption:

This file is in the public domain, because as the work of a non-human animal, it has no human author in whom copyright is vested.

Wikimedia has a simple argument: The monkey pressed the shutter button, therefore the monkey is the photographer. A nonhuman can’t be an author, therefore no copyright was created when the photo was shot, therefore it is public domain and they can use it freely.

Slater disagrees with this assessment. He says that he’s been trying to get Wikimedia to remove the image, but failed. Recently he’s gone public with his complaint, and has told the British media that he’s registered copyrights to the images in the US, has a US lawyer and may sue Wikimedia in the US. He has argued that Wikimedia’s theory is untested, and their actions have damaged his ability to generate income from his investment in camera gear and travel.

The law:

Note: The following is not “legal advice”. It’s just an overview for educational purposes only. Laws vary by state, province and country. If you have a specific concern or legal matter, please discuss it with a lawyer licensed in your jurisdiction. Although Slater is British, I am using US law here because indications are that he is planning a lawsuit in US federal court.

This controversy centers on the creation of a copyright. Two key points:

1. A copyright is created when an author creates an original work.
2. The initial owner of the copyright is the author.

The problem with Slater’s argument:

Simply put, a theory that copyright is vested in the person who can profit from a work doesn’t hold water. Although one of the aims of copyright law, and intellectual property law in general, is to reward investment in creating works (and inventions, and brand recognition, etc.) that is not the end of the discussion. To receive copyright rights, one must author a work. Slater must argue that he is an author of the photos.

The problem with Wikimedia’s argument:

Wikipedia incorrectly assumes that there is only one possible “author” of a photograph, and that’s the photographer, which is to say the person who presses the shutter button. No human shutter-presser, no author, therefore no copyright.

But that’s not what the law says. The law does not grant copyright only to the photographer, or to a person who accomplishes a physical act to create a work (such as pressing a shutter button). The copyright statute - the law as written by Congress - grants a copyright to anybody who has authorship of a work (including joint authors, and even people and companies who hire others to create works for them).

Deciding whether a person who participated in the making of a work is an author is actually not a simple matter, but the courts have provided guidance.

One way that a person who did not perform the instant act of creation may be an author is by providing the “original intellectual conception” of the work. For example, a director who gives a crew storyboards and instructions on camera angles and shots to take is an author of the resulting footage, even if he does not handle a camera. See section 2 of this case, where the director was not even present at the filming. (It was a documentary on the Titanic and the director is not a submarine operator.)

By another theory, when multiple people participate in the creation of a work but one is identifiable as the “master mind” or “superintendent” (e.g. a movie’s director) that person is the author.

But even in a case where there is not such a clear relationship between creators as that of a director and a minor contributor, so as to allow one person to claim to be the author, a person who makes a creative contribution to the work can claim to be one of the authors. This is what is meant by “joint authorship”, and each joint author independently owns a share of the copyright and has the rights of an author.

It’s in the details:

So here it is important to distinguish between the differing versions of the story of the photographs’ creation:

1. If the monkey picked up the camera off the ground and started snapping, Slater can’t claim to have made the original conception of the photo, or to have been the mastermind of the work. In this case, Wikimedia is correct: the monkey is the author, but copyright can’t vest in a nonhuman animal, so there is no copyright and the photo is in the public domain.
2. If Slater set the scene and prompted the monkey with the intent that it would take the photo, he could make a good argument that he did make the original conception of the work, or was the mastermind, and therefore is the author and owns the copyright.
3. But even if Slater’s work is not sufficient to make him the author, by conceiving the monkey selfie concept and setting up the scene he is probably an author, along with the monkey. This will have the effect he desires, because the monkey can’t get a share Slater’s joint author share will be the only one and he will have full ownership.

My prediction:

If Slater goes to court and tells the same story he tells in this video, Wikimedia will be in the unenviable position of trying to prove him wrong without any evidence to the contrary. My prediction: they would fail, and the outcome would be either 2 or 3. Of course, this assumes he actually goes to court, but he’s already stated that he will if he doesn’t get the resolution he’s looking for and I have no reason not to believe him.

My prediction is that, one way or another - by settlement or court ruling - Slater comes out on top.

AirBNB "squatters": A legal overview

First, apologies, because it’s been a while since I last wrote anything here. I went straight from a pretty involved project for a business client to my wedding to negotiating a surprise opportunity to buy a larger home to getting my current home ready for market, so I’ve been a bit busy. (If you happen to be looking for a 1BR with unbeatable location in Somerville, Massachusetts, send me a message.)

Note: The following is not “legal advice”, just an overview for educational purposes. The laws in this area vary by state and country, and it’s possible - as this example illustrates - to run into some serious problems by renting out a property without an understanding of rental laws in your jurisdiction, so if you are anticipating any legal problems arising from use of AirBNB or other methods of home “sharing” please contact a local lawyer.

AirBNB and the Law

AirBNB is fascinating for lawyers. For those unfamiliar with the company, it’s a web service that allows residential property holders to offer their apartments, vacation homes or even rooms in occupied homes for rent. The offeror is called a “host” and the renter a “guest”. Recently, AirBNB “hosts” who are property managers who have access to dozens or hundreds of apartments in large cities and offer them on a daily or weekly basis through AirBNB have been accused of running unlicensed hotels.

It’s an interesting study in the legal nature of business relationships in the “sharing economy” - similar to the “isn’t an Uber car just an unlicensed taxi?” debate. In most US jurisdictions, the law calls a person who’s paying a fee to use some real estate for a period of time either a tenant, subtenant or a hotel guest, depending on the terms of the rental and the nature of the owner’s business. One of the first steps in resolving a dispute over an AirBNB stay is deciding what the legal status of the host / guest relationship is.

AirBNB “tenant” becomes a “squatter”

I read an article this morning about an AirBNB host whose worst case scenario is playing out right now. The host used rented her Palm Springs, CA vacation home to a guest for a term of 44 days. According to the article, after 30 days the guest stopped paying, but is now refusing to leave.
If this had happened during, say, a one week rental, the host could have asked the police to help evict the guest. But under California law, somebody who rents a residence for 30 days or longer is a tenant and therefore entitled to the same legal protections as a person who leases an apartment. The host - now more appropriately called the landlord - must give a formal eviction notice and go to court to evict the tenant, and then recover back rent.

According to the article the unwanted tenant has “squatters rights” - but that’s not a correct use of that phrase. The legal term “squatter” in California law refers to somebody who takes possession of a vacant property, not somebody who overstays a lease without payment. Squatters rights are legal rights to such a property that a squatter can gain by occupying it for five years while doing his best imitation of a property owner and paying taxes on the property. If the true owner does not evict the squatter during the five year period, the squatter can claim ownership of the property. (Note that this is not how the law works in Massachusetts, where a squatter would have to occupy the property for 20 years under adverse possession law.)

Probably the most appropriate terminology to describe this AirBNB guest is “tenant at sufferance” - a tenant who has overstayed a lease without permission from the landlord. This is a fairly common scenario and one that has caused apartment building managers headaches for generations.

How does this work in Massachusetts?

In Massachusetts, according to a DPH opinion released in May, cities and towns may regulate AirBNB hosts as bed and breakfasts or lodging houses and require licensing. This means that you'll need to get in touch with the city clerk or licensing office in your city to find out whether there are any registration or taxation requirements for listing on AirBNB.

I Want to Host on AirBNB, So What Can I Do?

This section only addresses Massachusetts law, and is only a beginning. It’s not possible to examine all of the legal implications of home sharing businesses without writing a pretty large book on the subject. So if you have any questions, ask a lawyer who works in landlord / tenant law.

Hosting on AirBNB seems like an easy thing to do, but without preparation there are many ways to get into trouble. Would you lease your home to a tenant without a carefully drafted written lease, or open a hotel without reviewing the hotel licensing laws? Of course not - but many of the legal pitfalls for AirBNB hosts are the same.

Consider the host in Palm Springs. The problems she’s reporting go beyond a guest who won’t leave. According to her, the guest has also been running the air conditioning nonstop with the windows open and using much more than the normal amount of electricity, and is accusing the host of “negligent and malicious conduct” because the building has hard water. It’s not possible to avoid all potential problems, but being reasonably careful can decrease your risks.

First, make sure your own status is secure:

• If you’re a tenant, and you rent the home that you list AirBNB, you are offering your home for sublet. Many leases do not allow sublets, or require the landlord’s approval. It’s possible to get evicted from your apartment for listing it on AirBNB. So check your lease, and if necessary make arrangements with your landlord before you begin.
• Some condo associations and homeowner associations also have rules that may prohibit short-term rentals.
• Some cities and towns require registration or ban short-term rental entirely.
• If your home is mortgaged, your contract with your bank might not permit rental.
• Your homeowner’s or renter’s insurance might not protect you when you are renting your home.

Second, have a contract ready for AirBNB renters. Written contracts are a good idea in most business transactions. Review the AirBNB rules for when you must disclose to the renter that you require a written contract, and talk with a lawyer about what should go into the contract. Make sure your contract states that the rental is for “vacation or recreational purposes only”.

Third, limit your AirBNB rentals. The balance of legal protections shifts at 31 days and again at three months. If the rental is under 31 days, the host is exempt from most lead paint laws and evicting a nonpaying or otherwise problematic guest is relatively simple - though you might still need help from the courts, depending on the details of your situation. More than 30 days, and eviction requires 7 days’ written notice. More than three months and you have a tenant with full legal protections.

Contract outline for interiors projects

Note: This is not a complete contract in any way, just a broad and rough outline. I wrote it for somebody in Massachusetts, and the requirements will vary by state, country and project, so please speak with an attorney in your area if you need a contract for design work.

If you have any questions on this subject, or if you are in Massachusetts and need a contract for design services, please contact the author at Andrew@AndrewLynnLaw.com.

One of the services that I provide to architect and designer clients is contracts customized for the needs of a firm or project. A well written contract is essential because it sets up the scope and timeline of a project, manages the expectations of the designer and the client and gives you the rights of the parties and the procedures they will follow when something goes wrong.

A fellow lawyer recently asked me for an outline of a contract between a home owner and an interior designer. Here is what I wrote.

1. General: Describe the project, the participants in the project and the parties to this particular contract. Include normal contract-for-services language, such as choice of law, arbitration, termination, modification, complete integration.
2. Scope of Services: Describes generally the services that the designer will perform, and what services would be considered additional services. Additional services are work that is triggered by client requests or unforeseen circumstances and that is billed separately.
3. Project Phases: Lists the project phases: Design phases such as pre-design, design development, contract drawings; construction supervision; project close-out; and there may be others depending on the complexity of the work. Includes the services to be performed during each phase - in more detail than the general Scope of Services section - and expected dates of completion. There should also be a discussion of the completion of each stage: presentation of the deliverables to the client, and how much time the client has to approve the work or request changes.
4. Owner’s Responsibilities: What does the designer require of the owner? E.g., drawings to be provided, permit applications to be completed, access to the property, timely approval of design options.
5. Compensation: What will the designer be paid, and at what times? If additional services are requested, what is the compensation?
6. Delays: Describes the effects of delays. Delays caused by the client, by the designer, by the contractor, and by unforeseen circumstances will each be handled differently.
7. Estimates: If the designer is providing cost estimates, at what points in the project cycle will they be given, and how reliable will they be? Language should be appropriate to your jurisdiction and give the limits of the designer's liability for missed estimates if needed.
8. Intellectual Property License: Make a clear statement of which party will own the intellectual property, including copyright in the drawings. By default, copyright ownership goes to the creator, which is usually the design firm. The non-rights-owning parties (e.g. the building owner) will need a license for use of the drawings to build the project. Include limitations on those licenses, such as limiting their use to this project only. If building information modeling (BIM) technology will be used, include a BIM protocol section that makes it clear whether the BIM model will be available to the client and contractors. If it will be, and this is your first time writing a contract with BIM provisions, be aware that this is potentially a very complex matter and ask somebody with knowledge in the field for help.
9. “Boilerplate”: When talking with other lawyers I tend to refer to this section as something like “the usual terms in a contract for services”, which doesn’t sound interesting, but this is not to be overlooked, because the terms that go in this section define the procedures to follow when something goes wrong. Terms here include choice of law, arbitration, termination, modification, integration, nonpayment and others. This is very dependent on the law of the particular state or jurisdiction, and a good lawyer in your area who drafts contracts will know what to include.