Rents, Fees, and Deposits

Landlords set their rents, fees and deposits in accordance with applicable state statutes, local ordinances and business necessity. In jurisdictions not governed by rent control or rent stabilization regulations, landlords may set any rent amount they choose taking into account what the local rental market will bear. In practice, landlords are advised to set rents that are market competitive. While landlord operating costs influence rent rates, the local rental market determines competitive rents.

Market Rent

Market rent refers to the amount of rent a comparable unit in the same local area would rent for. Market rent is a factor of supply and demand conditions in the neighborhood area for similar properties for location, size, physical condition, amenities and services. Rent amounts are influenced by how much tenants are willing and able to pay for comparable units.

Setting the correct rent for a property can mean the difference between an extended vacancy and a rapid installation of a good tenant. Conducting a market survey to determine current rental rates under existing conditions can help a landlord determine if his rents are competitive. Market research will help determine what rate of increase will keep good tenants and provide satisfactory cash flow for business operations.

Setting the rent much above the market rent has a number of implications. There may be fewer applicants that respond to advertising efforts. For many tenants, a rent that is a small percentage above market rent will eliminate that unit from their consideration. Fewer applicants mean a reduced pool of screened prospects from which to select a tenant. To fill the vacancy a landlord may need to modify his rental standards or accept the possibility of an extended vacancy period.

Lower than market rent could mean reduced cash flow, perhaps a negative cash flow. However a slightly lower than market rent could also result in filling a vacancy sooner, which can offset reduced monthly revenue over the term  of the lease.

Rent Control/Rent Stabilization

Rents may be controlled by governmental regulations, such as rent control or rent stabilization. Briefly, rent control limits a landlord’s ability to freely set and increase rents for his properties. Rent stabilization regulates the rental amount by only allowing rents to increase by a maximum specified percentage annually.

Fees and Deposits

The following list of fees and deposits is representative of some of the more common fees and deposits charged by landlords. Landlords should thoroughly research applicable state statutes and local ordinances regarding fees and deposits before setting rental policies. It may be a good idea to seek legal consultation regarding rental policies if unsure about whether or not your lease agreement is in compliance with all current legal requirements at all levels of government.

Application Fees

Application fees are required by many landlords to cover the cost of tenant screenings for credit and background checks. Landlord-tenant statutes of each state may address the issue of application fees differently. Some states set a maximum fee amount while other states limit the fee amount to actual out of pocket costs as charged by the tenant screening services provider with a provision for a reasonable amount for landlord labor to evaluate and verify applicant data. In a few states there is no stated limit regarding application fees. Application fees are paid at the time of application submission and are generally nonrefundable.

Some landlords may require an application deposit in addition to an application fee.

Administrative Fees

In some states administrative fees are illegal. If not prohibited by law, administrative fees may be charged in addition to an application fee. The administrative fee is usually associated with large rental communities managed by a professional property management company.

Application Deposit

An application deposit is also known as a holding deposit. An application deposit is a deposit paid to the landlord by the applicant at time of application to request the landlord hold the rental unit for the applicant until the processing of his application has been completed. The prospective tenant is giving his good faith assurance to the landlord that he, the tenant, is serious in his interest in the unit and intends to sign the lease upon his approval as a tenant. When the landlord holds the rental unit for an applicant, the unit is taken off the market and unavailable to other qualified prospective tenants who may have to be turned away. The holding deposit is meant to compensate the landlord for damages suffered as a result of withholding the unit from the rental market in the event that the applicant fails to meet screening qualifications or rescinds his agreement to rent the unit.

An application deposit is not a security deposit. At the time of application there is no signed lease agreement between a landlord and prospective tenant. Since the applicant is not a tenant the state’s security deposit rules are not applicable.

Security Deposit

All states allow a landlord to collect a security deposit when the tenant moves in and to hold the deposit until the tenant moves out. Security deposits are funds that legally belong to the tenant and remain a credit of the tenant during the tenancy. A landlord is legally accountable to the tenant for use of the security deposit funds.

State landlord-tenant statutes regulate security deposit limits, deadlines for itemization and return of security deposits, and disclosure requirements regarding certain issues. The statutes provide clear protections to tenants for the use of their security deposit funds and the return of deposits upon tenant move-out.

Deposit disclosure requirements must usually be in writing. Common disclosures require the landlord to disclose the conditions under which part or all of the security deposit may be withheld and how the deposit is refundable. A landlord may be required to provide a written list of preexisting damage to the rental unit, a copy of inspection orders for the unit or a list of habitability defects before collecting a security deposit. In most states landlords that require a security deposit must utilize a move-in/move-out property inspection checklist to document the condition of the rental unit at time of tenant move-in and upon tenant move-out.

In states that require a separate account for holding a security deposit, a landlord is required to disclose the account number, amount on deposit, interest rate, and name and address of the financial institution.

The purpose of a security deposit is to protect the landlord from damage caused by a tenant. Specifically a landlord may only recover funds from a tenant’s security deposit if the tenant has defaulted on his obligation to pay rent (tenant owes past due rents) and/or the tenant has caused physical damage to the property that is beyond normal wear and tear allowed by statute.

Move-in Fees

A landlord may choose to collect a move-in fee for necessary services to prepare the rental unit for a new tenant. A move-in fee is a specified dollar amount that is not refundable to the tenant. A move-in fee is money that is paid directly to the landlord and is immediately available to the landlord to administer the funds as the landlord chooses.

Pet Fees, Deposits, Rents

A landlord may require that tenants with pets to pay a pet deposit, and a one-time nonrefundable pet fee at lease signing. Some landlords may require a monthly pet rent which is added to the tenant’s monthly rental amount.

Late Rent Fees

Late fees for past due rent are charged by a landlord to provide incentive to tenants to pay timely rents. The issues of late fees and related statutory grace period for rent payments are addressed by many state statutes. The landlord’s lease agreement must provide the details for late fee amounts, when the late fee applies, and any other applicable terms and conditions.

Utilities Fees

For rental units that do not have separately metered utilities, a landlord may charge a monthly fee to the tenant for utility use, such as water, sewer, trash, or cable service.

Amenity Fees

Some landlords may charge an amenity fee for tenant use of property amenities such as laundry facilities, gym/fitness center, or swimming pool. In some states a landlord is prohibited from charging an amenity fee. If applicable, the landlord’s lease agreement should clearly disclose terms and conditions for use of property amenities.

Miscellaneous Fees

There can be a variety of add-on fees that may be charged to a tenant for optional services or as additional requested services outside of landlord provided services. Add-on fees could include parking registrations, permits and monthly fees, storage units or lockers for tenant personal use, lock-out charges, key replacements or additional keys, replacement of lost gate or pool keys or openers, carpet cleaning fee, or bulk trash removal.

There are many other fees and deposits that landlords may use in their property management operations that are specific to their unique properties and the local rental market.

Note that the information discussed above is not nor intended to constitute legal advice. Information presented is deemed current as of this writing but is not all inclusive of all rents, fees and deposit requirements or regulations by state or local laws. Landlords should conduct their own due diligence to research applicable laws and implement fully compliant policies and practices.

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