It would be great if renting a home was as easy as finding a place and signing a lease. But any experienced renter knows that the real challenge starts long before a lease is signed. Every home you consider living in requires an application and a background check before a landlord or property manager will even consider a new tenant. While a hassle for both sides, tenant screening is a necessary part of the process. It ensures that the tenants who take up residence are financially and behaviourally responsible. It allows landlords to rent freely to most tenants and prevent damage caused by people with a history of bad behavior.
Rental Application Fees
But with tenant screening comes a cost, a cost often pushed onto rental applicants rather than covered as a cost of doing business by the landlord. We know this cost as the rental application fee. This is not a downpayment on the rental, it's a fee just to be considered as a tenant and often, renters pay multiple application fees when looking for a new home. Good landlords only charge as much as they need to run their tenant screening process, an amount they can lower by signing up for landlord services. Not-so-great landlords may take a cut of profit on top of tenant screening costs just for applicants to have the privilege of being considered.
The question is: How much are landlords legally allowed to charge for rental application fees? The answer varies by state.
Permitted Application Fees by State
The vast majority of the states have no legal limit and no stated policies on rental application fees. 42 out of 50 states put no limitations on how much or how little a landlord can charge for renters to apply to become tenants. However, in states where it has become an issue or where legislators were motivated to make a difference, there are a few specific policies that you should know.
Whether you are a renter or a landlord, be aware if you live in one of the eight states with legal limitations on how much can be charged for rental application fees. For reference, here are the 42 states that do not have application fee laws:
States with No Rental Application Fee Limits:
- New Hampshire
- New Jersey
- New Mexico
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
Now let's take a look at the unique laws for the eight states that do limit rental application fees permitted.
California - Cost of Screening, Max Based on CPI
California has an incredibly dense population along the coast and is well-known for strict legislature to reduce exploitative practices. In this case, the limitation on rental application fees is defined by the California Civil Code 1950.6. This code has several sections that go into great detail on how much can legally be charged as an application fee. If more is charged, landlords are subject to unfair business practices claims.
First, landlords are limited to an application fee maximum. This maxium started as $30 and adapted annually to the CPI (Consumer Price Index) starting in 1998. The maximum limit as of 2019 is now $50.94
In addition, landlords are also not allowed to charge more than the actual cost of screening, even if the screening cost is below the absolute cap. In fact, landlords are required to provide both a receipt for the application fee and an itemized record of the screening fees they paid. The amount should be an exact match or the application fee should be less than screening costs.
If no tenant screening is done, landlords are not allowed to charge any application fee. And if a unit is not available or available in a reasonable amount of time, landlords are not allowed to charge fees or enact screening unless they have written permission from the applying tenant.
As in most states, applicants may request and receive a free copy of the screening results.
Delaware - 10% Rent or $50
Delaware also gets precise about how much can be charged as a rental application fee. 25 Del. C. § 5514(d) defines very specifically that an application fee is the amount paid to a landlord by a potential tenant to assess "credit worthiness". In other words, if a credit check is done, an application fee can be charged. However, if credit worthiness is not assessed, then an application fee cannot be charged.
However, the amount of the application fee is not tied to the cost of the credit check. In Delaware, the application fee can be no greater than 10% of the monthly rent amount of no greater than $50, whichever is the larger number. This means that all Delaware landlords can charge up to $50 for an application fee (if they do a credit check) and up to 10% of rent if that is a greater amount than $50.
Massachusetts - Licensed Broker Only
In Massachusetts, the law on rental application fees is a little more complex. To the point, landlords and property managers cannot charge any application fees. Application fees are flatly illegal in Massachusettes and many current lawsuits are ongoing against landlords that have tried to charge illegal application fees to eager tenants. Landlords are only allowed to charge first, last, security deposit, and key deposit. This bars any other 'reservation fee' or loophole. In Massachusetts, rental application fees are simply illegal. But there is one interesting exception.
A licensed real estate broker (must be licensed, must be a real estate broker) can charge a "finder's fee" when sourcing tenants for landlords. This finder's fee can actually be paid by either the tenant or the landlord to the broker who got them together. Brokers are obligated to tell tenants if there is a finder's fee charged and whether they will be charged with that amount. However, if the broker is sourcing tenants for property they own (making them the landlord in question) they may not be legally allowed to charge tenants a finder's fee.
Minnesota - Cost of Screening
Minnesota has an entire legal code section 504B.173 on rental applicant screening fees and is prepared to keep these terms well-enforced. Minnesota rental applications are based on strict rules of fairness to the tenant, preventing exploitative application fee charging from landlords and property managers.
In Minnesota, application fees may be no more than the cost of tenant screening services. In fact, any of the fee not used for screening services must be returned. Tenants must receive a receipt for the fee, and landlords are not allowed to cash or use the fee until their final tenant leasing decision has been made.
Landlords must also make rejection qualifications clear and if a tenant is rejected for reasons outside those listed, their application fee must be returned. And like California, no application fee can be collected or screening performed unless there is a rental unit available or soon-to-be-available within a reasonable amount of time.
New York - $20 or Recent Documents
This year in June 2019, New York signed a new set of laws protecting the state's 5.4 million renters. Where once landlords could charge thousands between application fees and exorbitant security deposits, now there are very reasonable limits that also take into account how many New York renters apply to dozens of homes in their house-hunting process.
As of 2019, New York landlords cannot charge more than $20 for application fees, total. In addition, rental applicants have a right to waive application fees if they can provide a credit check and background check report made in the last 30 days. Therefore, one application with a requested copy can then save on dozens of application fees by also submitting copies of the initial credit check and background check.
Virginia - $50
Virginia has incredibly straight-forward laws relating to rental application fees, as stated in 55-248.4 definitions. It splits the application fee into two parts, refundable and non-refundable. The refundable half is the application deposit. This includes the security deposit and possibly some amount for consideration. If the tenant does not rent, the application deposit is returned between 10 and 20 days later.
The application fee is the non-refundable half and is intended to cover any credit or background checking done by the landlord. The maximum a landlord can charge for an application fee is $50, but this amount is 'exclusive' from actual costs. This means landlords don't have to refund what they don't spend, as long as checks are done.
If the housing is offered by the Department of Housing and Urban Development, then the maximum application fee is lowered to $32.
Washington - Cost of Screening
Washington is well known to build laws that defend tenants, and their rental application laws are no exception. According to RCW 59.18.257, tenant screening costs and fees must be tightly linked. Landlords are not allowed to charge more than the exact cost to screen tenants. They are required to provide a receipt and itemize the costs of their tenant screening. If landlords use their own personal labor to screen tenants, like calling contacts, they can charge for their efforts but charge no more than is average for their neighborhood.
In addition, Washington requires landlords to provide a great deal of information before the screening including what type of screening will be used, what kind of information will be assessed, and what criteria will results in denial of an application. Landlords may charge to have a property held for tenants (once approved) but the reserve money must be credited toward rent or security deposit once the tenant moves in.
Wisconsin - $20 and Copy Provided
Finally, there's Wisconsin. Wisconsin has perhaps the easiest set of rules for rental application fees. A landlord may charge the cost of the application up to a maximum of $20 for each application or "credit check fee" as defined in ATCP 134. The landlord must tell applicants about the credit check and the fee before submitting their request for the credit check. When the results for the applicant's credit check arrive, the applicant must be given a free copy.
What are the rental application laws in your state? For tenants, knowing the law can help you protect your rights and save you from over-paying an exploitative landlord. And for landlords, knowing the law will help you stay in compliance, treating your rental applicants fairly according to the laws of your state. Contact VerticalRent for more helpful insights or for assistance connecting with the right rental home opportunities according to your need. We're always ready to help tenants find good homes, and help landlords find good tenants.