Landlords Pay the Price for Leasing Fees

by Chris on August 3, 2015

News this week out of Boston confirms that a giant property management firm operating there has agreed to settle a lawsuit over tenant leasing fees for at least $2 million.

The Boston Herald reports that the landlord has agreed to refund charges for illegal application fees, as well as “amenity”, “move-in”, “community”, and pet fees. A judge ruled earlier that these add-ons violate the state’s landlord tenant laws.

tenant screeningAccusations against the landlord  included charging excessive and unfair fees and collecting these charges in subsequent months to avoid “upfront” fees prohibited by state law.

In addition, the landlord was accused of violating consumer protection statutes that gave rise to a claim for treble damages and attorneys fees.

The firm is said to manage as many as 6,600 units in the area. After an initial ruling that the fees were illegal, many in the property management community were awaiting word on how much this court case could cost this landlord.

The same landlord manages as many as 25,000 units in California, where it faces another lawsuit. In that case, the landlord is accused of violating state laws regarding excessive or flat-rate late fees that do not take into account the landlord’s actual losses or the length of the default. The landlord allegedly charged excessive interest rates on these fees, and rolled or stacked the fees so that any unpaid charges resulted in additional late fees for subsequent months.

In Iowa, a group of tenants has just been awarded approval to pursue a class-action lawsuit over fees. In that case, the landlord allegedly inappropriately padded repair bills and deducted the inflated figure from security deposits, charged mandatory deductions to the deposit for items such as carpet cleaning, and charged fines or penalties contrary to state law.

A lawyer speaking on behalf of the Iowa tenants expects the damages to run into the millions of dollars.

These lawsuits follow on the heels of a another major judicial ruling against a large Colorado-based landlord over nonrefundable charges that violated that state’s landlord tenant laws.

Domino Effect

These cases have served as a wake-up call for the apartment industry. The “David versus Goliath” theme inspires other tenants to fight back when they believe they have been treated unfairly.  Large numbers of tenants translates into epic losses, but it’s important for small landlords to realize that the same thing could happen to them on a smaller scale.

One of the most important lessons learned from these recent court rulings is that landlords can’t adopt a policy just because the big guys are doing it, or other landlords in the area have been getting away with it. There is no such thing as a one size fits all strategy when it comes to property management.

Before you charge tenant fees:

1. Make sure you know the law. This is one of your most important responsibilities as a landlord.

2. Avoid using the same forms and policies for multiple properties located in different states. Seek legal advice in each jurisdiction.

3. Where the laws are silent on fees, consider the overall lease package. If you add all the charges together, is the lease agreement still fair based on the current market?

4. It’s one thing to follow the letter of the law, but you also must follow the spirit. For instance, a late fee may be appropriate, but rolling it forward and adding interest for months at a time conflicts with the intent of law.

5. Avoid a la carte  leases where the advertised base rent is low, but all the amenities cost extra. That causes two problems. First, lower income tenants may not be able to enjoy basic services, which may be discriminatory. Also, this practice infuriates tenants — and disgruntled tenants are more likely to join class-action lawsuits.

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).

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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.

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