For both new and potential tenants, upfront rental expenses can be a burden. We looked at how these costs—application fees, security deposits, broker fees, and first and last month’s rent—can worsen affordability issues and possibly skew rental markets in a recent blog post. A rising number of state and local governments have responded to these issues by passing legislation that primarily aims to lower upfront expenses and control when they can be charged. Harvard’s Joint Center for Housing Studies (JCHS) revealed more in their latest report.
JCHS reviewed more than 30 pieces of legislation. The majority of these initiatives to control upfront expenses are new since 2019, even if some of these rules have been in place for a longer period of time. The scan gives us a greater understanding of the variety of initiatives to control upfront expenditures, even though this subset isn’t always complete or representative. We discover that these strategies have been implemented in a variety of market and political circumstances in recent years, even though the specifics differ.
Most regulations control the fees collected for background, credit, and rental history checks during the application and tenant screening processes. Renters can pay various fees on many applications, as seen by the fact that more than half of recent renters (57%) submitted two or more applications last year. However, these costs are often a relatively small expense for potential tenants. The majority of the bills we looked at, including a 2023 Connecticut bill, set a $50 ceiling on application fees.
Some localities and states have even stricter regulations. Application costs are prohibited in Vermont and limited to $10 in Eugene, OR. Allowable application costs in various areas are determined by the actual cost of completing an application. Application costs are transferable between properties for 30 days in Illinois and COSome jurisdictions control the conditions under which application fees can be processed and/or must be reimbursed, in addition to imposing strict caps on the amount charged.
Landlords Making Way Despite affordability Concerns
Landlords in California are required to process applications in the order that they are received, accept the first suitable applicant, and reimburse any money paid to those who are not chosen. In a similar vein, property managers of four or more units in Montana are required to reimburse any application fee, less any associated expenses, to a tenant who did not sign the lease., and they are restricted to the actual out-of-pocket expense of screening applicants. Similarly, in Virginia, the maximum application price for most renters is $50, but for those living in public housing and other subsidized apartments, it is $32. Additionally, there are additional out-of-pocket costs associated with doing credit and background checks.
Security deposit laws are also prevalent. These regulations restrict the fees that property owners may impose, as well as the conditions and timeframes in which a security deposit must be given back to the renter. A maximum security deposit of one to two months’ rent is permitted by most legislation. In fact, security deposits are limited to one month’s rent in Alabama, California, Delaware, and Maryland; one and a half months’ rent in Arizona; and two months’ rent (usually) in Colorado and Georgia.
Depending on the size of the landlord’s property holdings, whether a unit is furnished, if the tenant has a pet, or whether the renter is eligible for specific types of rental assistance, several jurisdictions have exceptions to their caps. Tenants in Arizona and Hawaii must have their security deposit back within 14 days after the conclusion of the lease; in Alabama, landlords have 60 days. Landlords are required to pay interest on security deposits to tenants in more than a dozen states as well as Washington, DC; however, each state has different requirements regarding the type of interest payments and which landlords are responsible for making them.
At least one community has made an effort to deal with upfront expenses more comprehensively by limiting move-in expenses in general and letting tenants pay them over a longer period of time. Move-in fees and security deposit payments are restricted at one month’s rent in Shoreline, Washington, a city of more than 60,000 residents located north of Seattle. In order to lessen the initial burden of these expenses, the city’s 2023 ordinance permits tenants to pay their upfront expenses, such as move-in fees, security deposits, and last month’s rent, in equal monthly installments for up to six months, depending on the length of the lease.
Broker fees are less typical outside of large, more expensive regions and cover the services a broker offers in matching available apartments with tenants. Even in cases where the property owner hires the broker, the renter may still be responsible for paying these fees. Although the cost of broker fees varies, they are frequently equal to one month’s rent in Boston and 15% of the annual lease price in New York City. These fees can significantly increase the charges that tenants must pay at the time of lease signing. However, this type of broker fee was prohibited in both cities last year.
The Fairness in Apartment Rental Expenses (FARE) Act in New York City forbids landlords from mandating tenants to utilize broker agents, forbids brokers from charging tenants a charge, and mandates that property owners disclose all applicable fees in their listing. In a similar vein, Massachusetts has banned brokers from charging new tenants fees when the landlord is the primary client or contractor for those services. State and municipal legislators are becoming increasingly concerned about upfront rental expenses, and new legislation aims to help tenants in the face of record-high unaffordability.
These rules set a maximum on upfront expenses, increase rental process transparency, and govern the situations in which these payments may be necessary. When reasonable and open, these expenses play a crucial role in the rental market and lessen the expenses that property owners would otherwise bear, even though they have the potential to become excessive and burden tenants excessively. Renters should be protected by policies that take these trade-offs into account. Capping upfront expenses may occasionally result in higher monthly rental payments. However, this should make the actual rentals paid more transparent and allow tenants with limited funds to spread out these expenses over time.
