A landlord in Pennsylvania has agreed to pay $30,000 in restitution after the state’s attorney general found the landlord was charging illegal fees.
Tenants complained that the landlord was deducting a 15% “administrative fee” from each tenant’s security deposit, amounting to about $80 per lease. The Office of Attorney General’s Bureau of Consumer Protection determined that this fee was illegal under both the state’s rental regulations and its consumer protection statutes.
“Collecting an administrative fee to handle security deposits is illegal in Pennsylvania,” says Attorney General Josh Shapiro who announced the settlement.
The company has agreed to pay $30,000 to tenants and to stop charging the fees going forward. Cases brought under consumer protection statutes are particularly problematic for landlords because these laws generally allow for compounded damages, in some cases as much as three times the actual losses incurred by tenants, as well as costs of prosecution.
In this case, the landlord chose to cooperate in the investigation, and likely benefited financially. The attorney general publicly commended the company for not disputing the charges and agreeing to settle the case.
Illegal fees are a common source of income loss for landlords. Recent examples include a major landlord who paid nearly $2 million to settle a lawsuit over illegal fees including cumulative late fees, and another landlord is subject to a class-action lawsuit over padded security deposit deductions. Excessive application fees, stacked late fees, amenity fees, and fees for basics like heating or air conditioning are common examples of charges that prosecutors say cross the line.
Rental fees often are regulated by individual states, and these laws vary greatly. Where no rental restrictions exist, courts step in to determine whether a fee is onerous or violates consumer protections. Tenants who have no other option than to pay illegal fees to gain housing or inexperienced renters such as students are the most likely to file complaints and to win a dispute over fees. The more tenants who have been affected, the higher the penalties.
To prevent this income loss, landlords should:
Review state and local rental ordinances that define the specific fees that are allowed and those that are expressly prohibited;
Avoid treating fees as a profit center. Tenant fees should bear a reasonable connection to actual costs. That is the standard that courts apply when determining if a fee is illegal;
Consider the overall cost of the lease. Courts look at the whole package when determining if charges are excessive or violate consumer protection laws — and how that compares to market rent; and,
Stay away from tiered leases where some tenants can pay for amenities while others cannot afford it. That doesn’t go over well with tenant advocates — or judges.
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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.