THE HOLIDAY SEASON IS HERE

But are the fees you are charging legit?

By Howard Bookstaff, Hoover Slovacek LLP, HAA General Counsel

The Apartment Industry is under scrutiny. Nothing new, you say? Both the White House and HUD have recently taken positions that a number of fees in our industry are … well … “Junk.”

The Background

• January 25, 2023: Biden-Harris Administration announces new actions to protect renters and promote rental affordability.

• January 2023: The White House Blueprint for a Renters Bill of Rights is published intended to support the development of policies and practices that promote fairness for Americans living in rental housing. Among a number of other issues, the Blueprint stated that leases should not include hidden or illegal fees. (Reported in the March issue of Abode)

• March 7, 2023: Secretary of HUD sends an open letter to housing providers calling for action on “Junk Fees” that renters face. (Reported in the April issue of Abode)

• July 19, 2023: White House publishes a Fact Sheet taking on “Junk Fees” in rental housing to lower costs to renters.

• July 2023: HUD publishes “Transparency in Rental Fees” stating that application fees can limit options for renters and strain household budgets, particularly for renters with low and modest incomes who already face high rental cost burdens. In addition, the monthly rent included in a listing may not reflect the full cost if an owner later requires the resident to pay undisclosed or hidden fees. The publication provides an overview of the research on rental fees and highlights strategies to encourage transparency and fairness in the rental market.

So what’s the problem?

The White House and HUD claim application fees are excessive and duplicative and rental fees are excessive, undisclosed or hidden. Although I previously addressed issues raised by the Blueprint for a Renters Bill of Rights and HUD’s open letter, the continuing publications warrant further discussion.

The publications suggest:

• Application fees should be capped or eliminated altogether.

• Applicants should be allowed to provide their own screening reports.

• A single application fee should be allowed to cover multiple applications.

• Excessive duplicative application fees could be deemed discriminatory because higher upfront costs add to the challenges faced by renters of color, and Black and Hispanic renters report submitting more application fees than White or Asian American Pacific Islander renters.

• Limiting allowable fees and deposits at the time of move-in or lease signing.

• Clearly identifying bottom-line amounts that residents will pay for move-in costs and monthly rent.

What other states do?

It may be beneficial to see what other states have done regarding their landlord/tenant laws to determine what might be coming our way. We often see laws in other states blossoming into ideas for new legislation in Texas. While it is important to note that these are not representative of current laws in Texas, we need to be on the lookout for what might be coming.

• Colorado:

- Allows applicants to reuse a rental application for up to 30 days without paying additional application fees.

- Limits fees to residents when owners fail to provide a nonrenewal notice that disguise fees as “rent.”

- Limits the amount an owner can mark up to charge a resident for third-party services.

• Rhode Island:

- Limits application fees beyond the actual cost of obtaining a background check or credit report (if the applicant does not provide their own report).

• Minnesota:

- Requires owners to clearly display the total monthly payment in all nonoptional fees on the first page of the lease and in all advertisements.

• Connecticut:

- Prohibits owners from requiring a fee for processing, reviewing or accepting an application.

- Sets a cap of $50 on the amount that can be charged for a screening report.

- Prohibits move-in and move-out fees, and certain fee-related lease provisions, including certain late fees relating to utility payments.

• Maine:

- Prohibits owners from charging a fee to submit an application that exceeds the actual costs of a background check, a credit check or another screening process.

- Prohibits an owner from charging more than one screening fee in any 12-month period.

• Montana:

- Requires owners to refund application fees to unsuccessful applicants except any portion of the fee used to cover the costs relating to reviewing the application, including conducting a background check.

- Owners can only charge applicants for the actual cost of obtaining a background check or credit report.

• California:

- Requires mandatory disclosure of monthly rent rates, including disclosure of a range of payments, fees, deposits or charges.

- Prohibits certain fees from being charged.

What can we do?

The theme of the publications suggests that the fees are excessive or hidden. To combat these claims, you may want to consider the following with respect to application fees and rental fees.

• Application fees:

- Disclose application fees up front before an applicant is expected to pay them.

- Be able to justify the amount of the fees (HUD suggests that the fee not exceed the cost associated with the application process, including screening the applicant).

• Rental fees:

- Fully disclose all fees.

- Be transparent in advertisements regarding fees (you want to avoid an argument that prospects are surprised when they find out what they are “really” paying to rent a unit).

- Be sure that all fees are agreed to in advance in writing by the resident.

- Be sure that you are not charging fees that are prohibited by law.

- Be sure that the amount of the fee is reasonable considering what the fee is supposed to cover (consider charging fees to cover expenses, not build profit).

TAA Rental Application and Lease

• Rental Application:

- Paragraph 1 of the “Disclosures” section of the TAA application provides that the applicant agrees to pay a non-refundable application fee in the amount identified in the application and that the application fee offsets the cost of screening an applicant.

• Lease:

- Subsection L in the “LEASE DETAILS” of the lease allows you to identify all monthly recurring fixed charges.

- It is interesting to note that the TAA lease was used as an example in the HUD publication from July 2023 as a lease that provides a Summary of Key Information that succinctly highlights the total monthly costs and any additional fees to which renters may be subjected.

Fees in the apartment industry are under attack! It would be beneficial for you to review all fees you charge to be sure that they would pass muster under White House and HUD scrutiny.