A landlord is acting quite within his rights when asking a fee to accompany a rental application.
This money is used to cover costs associated with processing the application, such as credit checks, background checks, confirming employment etc.
A landlord may be required to provide proof of his expenses should a rejected applicant dispute a non-refundable application fee.
If a landlord accepts a prospective tenant (perhaps on a first come, first served basis) and does not have the need to do any checks on any other candidates, he should return the payments to the other candidates as soon as possible.
A simple letter accompanying the payment can include the following:
Our policy is to screen applicants on a first come, first served basis.
A candidate ahead of you qualified for the apartment and as such we did not run a credit report nor contact any of your references.
Please find enclosed your returned check.
NOTE: Links to a variety of free forms to assist you with managing your rental properties (application form, rental agreement etc.) can be found on our main Real Estate page.
The laws relating to the fees charged for a rental application vary greatly in different states or countries and landlords must ensure that they comply with the maximum amount allowed, to what extent it must be refundable and the time limit within which to refund any money.
For rental applications, a fee is only applicable to processing the application and does not affect the security deposit or first month's rent of the successful applicant. The landlord should also make it clear to all prospective tenants that should they be approved, this fee will not act as a holding deposit or reservation fee either.
A property can only be secured by either paying a separate reservation fee (which must be offset against the security deposit) or by paying the full security deposit and/or the first month's rent.
Upon payment of a reservation fee, there must also be a clear understanding between landlord and tenant whether this amount will be refundable should the tenant change his mind and decide not to take up the tenancy.
If the landlord does not refund and is challenged, the onus will be on the landlord to prove damages suffered! A tenant should be quite sure that he/she indeed wants to rent the property before paying any money and should not pay a security deposit or reservation fee until he/she has been notified (preferably in writing) that their application has been accepted.
Some landlords may also ask for a move in or security deposit, which is usually refunded if there is no damage done to the building during the move.
The landlord should show clear accounting records of the fees for rental application processing. It is easier to settle outstanding amounts with the tenant, rather than offsetting monies due against the security deposit. At the end of the rental period it will be easier to account for deductions against the security deposit and calculate interest accrued (if any).
A landlord can incur quite stiff penalties if it is found that he was acting in bad faith with regards to any amount charged for the tenant lease application. He may have accepted an application and fee knowing that there were no rental units available at that time or knowing before doing any checks that an applicant will not qualify because of inadequate income.
Whilst charging a fee to accompany a rental application is allowed by law, the landlord should not see this as a way to make money and should always act in good faith.