A recent federal court decision found that amenity use fees charged by landlords may be illegal, creating a significant new liability issue for owners of larger apartment complexes.
“It’s a very strict interpretation of a statute, and those fees are not unusual [compared to] what landlords are charging out there,” said Greg Vasil, CEO of the Greater Boston Real Estate Board.”
Under Massachusetts law, a landlord is entitled to charge first and last months rent, a security deposit, and a fee for changing locks before a new tenant moves in. But the law states that a landlord may not “require a tenant or prospective tenant to pay any amount in excess of,” those fees, prior to the start of the lease.
Hermida v. Archstone is a recent case in federal district court and the first of its kind to deal with this particular issue. Tenants Maeve and Jefflee Hermida were soon-to-be residents of Unit 302 at 4 Archstone Circle in Reading, a property owned and developed by national apartment operator Archstone. Prior to moving in, in addition to a pro-rated first month’s rent, they were also charged an upfront fee of $475 to access the property’s shared amenities – a pool, gym, and an outdoor grill.
They argued that the $475 fee charged prior to the commencement of their lease wasn’t explicitly permitted under the security deposit law, which states any additional fees or penalties were prohibited. As a result, the amenity use fee wasn’t legal, they said.
Judge William Young agreed, writing in his decision, “Courts have held that the language of [the security deposit law] is unambiguous and strict compliance is required.” Even though the total amount Archstone charged, including the amenity fee, was less than it was legally allowed, because the law “prohibits the landlord form charging up-front any amount in addition to those enumerate provisions, Archstone … exceeded the charges allowed by the Security Deposit Statute.”
Told You So
As a practical matter, the ruling may merely require some administrative re-jiggering. The security deposit law says nothing about usage fees charged to a tenant after they begin a lease. Simply making sure to charge any usage fee after tenants move in rather than before ought to solve any problems raised by the ruling for future tenants.
But according to Matthew Lynch, a partner at Nixon Peabody’s Boston law office, any landlord who doesn’t make that switch right away could be in hot water.
Until now, there’s been no ruling on this specific issue, Lynch says, and in that case, courts are more inclined to be lenient. But now that this case is out there, any judge reviewing a similar case may well “say ‘you knew the decision in the Archstone case and they you kept charging it?’ That’s a different story,” Lynch explained, and that could open up a landlord to “treble damages and attorneys’ fees under the consumer protection statute.”
While the Hermida case itself may settle before the state where damages are awarded, with the possibility of treble damages on the line, “landlords have to use it as an opportunity to analyze their practices.”
Since it’s mostly owners of larger buildings and complexes with common swimming pools, gyms and the like who charge such fees, that may well be enough to entice a plaintiff’s attorney to attempt a class action suit involving multiple tenants.
“People in the industry are watching that case very carefully,” said Vasil, to see whether it goes to a higher court. Given that the decision was made in federal court, it might still be possible for a Massachusetts state court to rule differently on the issue. Since the law in question is a Massachusetts state law, the Supreme Judicial Court would have the final word on the issue.
Attorneys for Archstone could not be reached for comment on whether they plan to appeal.
