Why landlords don’t ask for escrowing of rent

September 2007

State law already allows for escrowing of withheld rent, but landlords just don’t ask for it. That’s the new argument that legal services lawyers came up with this year against SPOA’s proposed mandatory rent escrow law for Massachusetts. In effect, they are saying rent escrow is already on the books. If we just ask for it, the abuse of the free rent trick would stop.

This is simply another bogus argument from legal services. Why would property owners losing thousands of dollars not turn to an available remedy to stop their losses? What kind of organization would SPOA be for failing to point out to its members this allegedly available remedy for the free rent trick?

The truth is that there is a rent escrow provision now in state law, but it is totally unworkable. It requires a long hearing to establish the escrow amount, creating the equivalent of two trials for one eviction. And it’s discretionary. The judge can simply say “no.” Given the lengthy process, judges simply don’t order escrow, or only rarely. That’s why landlords and their attorneys do not ask for rent escrow.

Requires a long hearing

Current law says: “The court after hearing the case may require [escrowing]…” The law then goes on to state quite specifically what the judge must do in this hearing. The judge must determine “the fair value of the use and occupation of the premises less the amount awarded the tenant or occupant for any claim under this section.”

What are those claims? Claims of defective conditions in the apartment. Claims of interference with the tenant’s “quiet enjoyment” of the apartment. Claims of retaliation by the landlord. Claims of mishandling a security deposit. Claims of any other “material breach” of the rental contract. And so forth. All these claims, if the judge finds them valid, produce deductions in the amount to be escrowed. Tenants and their attorneys, of course, will be battling to make as many claims as possible to reduce the escrow amount, which will make the hearing long.

All this must be done to determine the amount to be escrowed while landlord and tenant wait for the eviction trial. The sheer length of this hearing makes judges decide not to order escrow. The burden on the courts would be tremendous if every demand for escrow from landlords resulted in such hearings.

Two trials for each case

In fact, the escrow hearing required in present law is just like an eviction trial, and you don’t have to take SPOA’s word for it. A pro-tenant attorney writing in the New England Law Review about SPOA’s mandatory rent escrow law puts it this way:

“Although the courts today still have the power to order a pre-trial deposit, the amendments which have been made to Chapter 239, 8A [by the state legislature in 1975] now require the court to consider all counter-claims raised by the tenant. This makes the pre-trial hearing an exact duplicate of the trial on the merits, which effectively discourages judges from making the [escrow] order” (New England Law Review, Vol. 36:1, p. 296, 2002; emphasis added).

Something is seriously wrong with a system that, in order to have rent escrowing, the equivalent of two eviction trials must be held over exactly the same or similar factual information and legal claims. The problem is with the lengthy pre-trial escrow hearing, not the eviction trial itself.

The question is: what amount should be escrowed? We are dealing with a rent withholding law, and what is being withheld from the landlord is the contract rent that landlord and tenant agreed upon. That is the amount that in principle should be escrowed. Deductions from the “agreed-upon” or contract rent should only occur later, as a result of the evidence-based eviction trial itself, not before the trial.

SPOA’s bill:

  an optional short hearing

The goal of SPOA’s escrow bill is to simplify the escrow process. In contrast to existing law, SPOA’s bill calls for an optional and short escrow hearing, only if either party asks for it. Hopefully, there will be little need for a hearing.

How do we make the escrow hearing short and not likely to be needed? By carefully defining in the law the exact amount to be escrowed. It is the “agreed-upon” rent or the contract rent, less certain limited deductions, again carefully defined and required to be documented with receipts.

Both landlord and tenant should easily know the contract rent, and the amounts deducted with receipts should also be clear. So calculating the amount to escrow should be easy arithmetic for landlord and tenant.

What deductions do we allow for? Only out-of-pocket expenses where the tenant spent money that otherwise would be used for rent or for escrow. For example, the tenant may have spent money for repairs under the state’s “repair and deduct” law. Or under another law, money may have been spent to keep utilities going that the landlord ordinarily pays for but hasn’t. Or the tenant may have bought space heaters and blankets during a no-heat emergency, or similar emergency expenses. These amounts may be deducted from the contract rent in determining the amount to be escrowed, but only if the tenant documents these expenses with receipts.

If either party disagrees, if the landlord thinks the tenant has not escrowed enough, or if the tenant thinks the landlord has demanded too much escrow, then either party can ask for an escrow hearing. The hearing will be short because it will be limited to

very specific issues: what exactly is the contract rent that landlord and tenant agreed upon, what exactly are the correct deductions to be allowed as narrowly defined by the law.

In most cases, an escrow hearing may not happen at all. If it does happen, it is made short and simple and the courts will not be burdened. In fact, rent escrowing will unburden the courts by throwing out all the delaying tactics that tenants use when they play the free rent trick. And the key reason why judges don’t order escrow now – the length of an escrow hearing every time escrowing is granted – has been removed.

It’s discretionary

The other problem is that existing law puts escrowing entirely at the discretion of judges: “The court after hearing the case may require [escrowing]…” You can ask for escrow, but the judge can say “no.”

This discretion poses a problem for judges. They must decide when to grant escrow and when to deny it. Which cases merit it and which don’t? For there to be consistency and equal treatment for all litigants, the judges must either always grant escrow, always deny it, or find some consistent dividing line in the middle of a wide array of eviction cases. 

No such middle dividing line has developed, so judges have made it known that the answer is “no” to a request for escrow.

We say that “judges have made it known” because currently no attorneys or landlords ask for escrow (or rarely ask for it). The culture of the state’s courtrooms assumes that escrow will be denied, so it is not requested. An escrow law may be on the books, but it is not used.

SPOA’s bill would make rent escrowing mandatory at any time that a tenant claims to be “withholding” rent if the landlord demands it. So the landlord makes the decision to escrow, not the judge. The burden is on the landlord to demand escrow, but once the demand is made, escrowing must be done following the carefully defined rules. If the tenant fails to escrow, no counter-claims regarding code violations can be made and eviction is ordered.