Landlords Lose Big on Upfront Fees, Deductions

by Chris on July 4, 2016

tenant screeningThe owner of several apartment buildings in Washington and Oregon has lost a class-action lawsuit over a $400 fee charged to each tenant in advance for carpet cleaning and repainting.

The Seattle-based landlord was ordered to refund the fees to all tenants affected by what the court deemed to be excessive charges, according to a news report. It is estimated that the landlord will refund approximately $290,000.

The lawsuit alleged that the fees were not legal, and were not adequately described in the lease agreement. Many of the tenants were students.

A local property manager told reporters that, despite a law to the contrary, charging upfront fees is a common practice in the area.

In a related story, a California landlord that a decade ago settled complaints with the state’s attorney general, is the subject of a recent investigative news story on behalf of tenants who say their security deposits are being unfairly withheld.

Reporters say that the landlord’s management company previously agreed to pay $1.5 million to settle allegations that it deducted hundreds of dollars from individual tenants’ deposits to cover cleaning and repairs despite the actual condition of the units. Recently, a number of tenants have claimed that, they too, have been subject to these deductions, despite having returned a clean unit.

Employees of this landlord have corroborated the tenants’ stories, including that deductions taken from tenants were not used to make repairs, that “standard” deductions such as carpet cleaning fees were taken even where the exiting tenants cleaned the carpets, and that deposit deductions were taken for two or three times over estimates for repairs. In addition, employees have made allegations that supervisors were paid bonuses tied to increased move-out charges.

A leasing employee told reporters that he took calls daily from disgruntled tenants regarding security deposit deductions. The landlord is thought to have rented to 18,000 tenants. The landlord has denied the allegations.

Other common tenant complaints include non-refundable application fees that are charged whether or not the applicant is under serious consideration.  In one case, a landlord charged a hefty application fee per applicant, unless the parties shared a last name. That could give rise to allegations of gender discrimination.

In addition to out-of-pocket losses, landlords who charge questionable fees soon find themselves the subject of negative reviews and ratings, which repels the best renters. That sparks a downward cycle of bad tenants, more complaints, more bad tenants as the property declines in value and profitability.

Landlords can avoid these costly problems by taking a few precautionary measures:

1. Always check local rental laws before charging fees to tenants or applicants. If you cannot research these laws, hire an attorney.

2. Follow the general rule that any allowable fees or other charges — like upfront fees, security deposit deductions and late fees — must be limited to actual costs or losses, and not used as profit centers.

3. Fully inform rental applicants of all fees to be charged before handing out a rental application. Make certain that all fees are detailed in the lease agreement.

4. Review the completed rental application first to see if the applicant appears qualified before running tenant screening reports. If the person is eliminated prior to the tenant background check, return the application fee. Note: Many states limit application fees to only what it costs to run the tenant background check.

5. Document deductions and repairs, including receipts for work performed.

6. Demand that tenants do a walk-through when they move out. Discuss any potential deductions to the security deposit at that time. That may take the sting out of losing security deposit funds and lower the likelihood that the tenant will sue, post a scathing review — or give an interview to the local newspaper.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in 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.

{ 1 comment… read it below or add one }

kg August 1, 2016 at 5:30 am

We don’t charge up front fees. Instead we give each tenant our screening criteria and questions we ask their previous landlords along with their application. We tell them to call us if they have any questions. I figure paper is cheap compared to wasting everyone’s time. Then the first thing I do is call previous landlords before running credit reports. We inspect during tenancy and make repairs. Broken windows we tend to charge them supply cost while we pay for labor. If it’s an old fashioned window we might replace with plexiglass to prevent if from being broken again hopefully. Usually the current tenant is still there when we are showing the house. We point out problems to the current tenant at that time if anything major is broken or there is a problem where we would deduct it from the security deposit. That way they have the opportunity to take care of it before they move out. We’ve had very good luck with our tenants and really haven’t had to charge for many broken things. Most leave it relatively clean. However we still do a thorough cleaning, repaint, and repair minor things, like loose toilets, as needed. We like to keep our properties up to a higher standard to attract a better tenant. We do not use carpet. That generally only lasts for one tenant. Tile, allure type floors, and regular hardwood floors hold up the best with tenants.

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