Neihaus v. Maxwell
Court of Appeals of Massachusetts
766 N.E. 2d (2002)
Neihaus (plaintiff) leased his home to the Maxwells (defendants), who paid a security deposit and last month's rent upfront; Neihaus's property manager, Hunneman, deposited those two payments into one account, separate from the operating account used for monthly rent. When the Maxwells overstayed the lease without paying rent for the extra month, Hunneman withdrew their last month's rent from that account to cover it. Neihaus sued to recover possession, and the Maxwells counterclaimed that Neihaus illegally commingled their security deposit with other funds and failed to timely return it; the trial court dismissed the counterclaims, and the Maxwells appealed.
Whether failing to keep a security deposit in its own separate account violates the rule against commingling tenant and landlord money, where the tenant's money is protected from diversion by the landlord, earns interest, and remains out of reach of the landlord's creditors.