Application Fees — Back to Basics
An application fee generally refers to a fee charged by an owner for receiving and processing an application for tenancy and/or providing a reference for a lease application. While application fees can be charged in real estate transactions that do not involve rental of real or personal property, this discussion shall be limited to leases and license agreements involving real property.
Said differently, an application fee can be charged by any person for the receipt and processing of an application to buy, sell, transfer, convey, exchange, donate, give, lease, license, or otherwise dispose of property or an interest in a property , solicit prospective purchasers, tenants, licensees, or any other person interested in the purchase, lease, license, or other transfer of property, advertise, cause advertising of property, seek financial information regarding a prospective purchaser, lessee, licensee, licensee or other person, or do or perform any other act designed to attempt, arrange, solicit or arrive at a sale or rental of any real or personal property. Applicability of the Application Fee Statute is limited to those charges made by the seller, landlord or other property owner, and not any agents, including real estate brokers, who are acting on the owner’s behalf.
The Law in Massachusetts
Massachusetts General Laws Chapter 186 Section 15B governs application fees required to be paid by a prospective tenant prior to executing a lease in Massachusetts. It provides in part: Notwithstanding any general or special law to the contrary, no person shall require as a condition of a rental agreement a prospective tenant to pay to the landlord or lessor or any person acting as an agent for such landlord or lessor an application fee in excess of $25. You may be thinking that the statute only applies to applications fees payable to a landlord or their agent. But the Massachusetts Consumer Protection Act (Massachusetts General Laws Chapter 93A) permits the Attorney General to interpret statutes. It defines "person" and "act or practice" broadly. It defines "Person": Whoever or whatever shall be a natural person, partnership, corporation, trust, business entity or association, any state or political subdivision thereof, and any legal successor, representative, agent or instrumentality of any of the foregoing and shall include any and all agreements, alienations, transfers, assignments, sales and leases of every kind and nature. It defines "act or practice": [A]n act or practice that, in trade or commerce, which is, to any extent, unfair, deceptive, misleading, obscene, immoral or devoid of valid educational value; 1. Acts which take advantage of the inability of a party reasonably to protect his own interest because of age, ignorance, illiteracy, mental incapacity, physical in infirmity, distraction, helplessness, emotional distress or institutionalized or other mental state or physical condition or because a condition of similar dependence or a language barrier restrains his ability to make informed, intelligent and voluntary choices. The practice of the Massachusetts Attorney General has been to apply Chapter 93A broadly and sometimes expansively when it comes to prohibiting landlords from collecting illegal application fees. For example, the Massachusetts Attorney General has maintained that this statute prohibits pre-lease deposits in situations in which no fee is requested, but the prospective tenant is required to put up money. Such "key money" checks are technically not an application fee as defined in the statute, but the AG takes the position that such fees are prohibited by the prohibitions on unfair acts and practices. However, chapter 93A does not permit an individual to sue and collect damage from a landlord for a violation of Chapter 186, § 15B. The remedy is with the AG. In a 2013 case, the Attorney General’s Office obtained over $11,000 in restitution for individuals held up by a property manager who was requiring fees in excess of those permitted by the law.
Landlord’s Rights and Limitations
In Massachusetts, the law allows landlords to both collect and retain application fees. However, they must be used strictly in accordance with the law. If the fees are managed properly, they can be a great tool for landlords to cover their expenses to find immediate tenants while also deterring bad applicants by vetting the good ones.
The law states a landlord cannot take more than $25.00 for a fee to obtain a criminal history and verifying the information’s accuracy. They also cannot take more than $25.00 to verify income, references, and employment. This is true regardless of the number of applications received. Further, an applicant cannot be charged for anything more than those two items. However, this $25.00 cap does apply to each fee; meaning if a prospective tenant required both a criminal record check and a credit report, the landlord could charge $50.00 total. Other than the above-mentioned fees and the application fee for an apartment on a first come, first served basis, a landlord cannot collect any other fees.
If a landlord collects a supplemental rent application fee, the landlord must return it to the applicant if they are rejected within 15 days after the supplement fee was paid. Furthermore, if the person paid that $50.00 and subsequently withdrew their application in 10 days, the landlord must still return the supplement fee. In these scenarios, the application fee would then be held as a deposit for the first month’s rent or the last month’s rent, but never both. If a landlord fails to follow the appropriate disposition of the application fees outlined in Massachusetts law, a tenant could be entitled to triple damages plus attorney’s fees. In addition, the law entitles real estate brokers to a maximum of $50.00 for the supplemental application fee (See Mass. General Laws Chapt. 186, § 15B).
Tenant’s Remedies for Unlawful Fees
In cases where a landlord has charged an application fee not permitted under Massachusetts law , a tenant has some recourse. Tenants may be able to qualify for a refund of the amount paid plus a penalty. One area to explore is whether the fees paid may be considered as part of the first month’s rent and therefore the landlord has not complied with Massachusetts law on this point. Tenants should contact their local housing authority or the Attorney General for more information about recovering illegally charged application fees.
Recent Cases and Other Authorities
In 2016, the Massachusetts Supreme Judicial Court (SJC) issued one of the more prominent opinions on the legality of application fees in the case of H Oliveira v. 10 Cable Drive Realty, LLC, 477 Mass. 607 (2017). In H Oliveira, the plaintiffs were tenants at an apartment complex in Haverhill, Massachusetts. The property was 60 years old and comprised 225 apartment units. All apartments were rented to low-income families under the provisions of the Department of Housing and Community Development’s (DHCD) federally funded Local Initiative Program (LIP) or Massachusetts Housing and Shelter Alliance Program (AHSP). The plaintiffs were charged a combined total of $1,260 in application fees, which were used (in part) to check if plaintiffs were eligible for LIP or AHSP. The plaintiffs sued after the landlord refused to refund the fees, claiming that the fee was void under the statute. The SJC held that when a landlord charges an applicant application fees that result in "significant revenue" for the landlord, that landlord is acting as a "creditor". As a creditor, that landlord must comply with chapter 93, section 24 of the General Laws, commonly known as the Small Loans Law. The Court also found that the lessor must follow the same requirements, finding that nothing in the plain language of the statute requires a creditor to be in the business of making real estate loans. The decision in H Oliveira effectively ended the practice of charging "application fees". The Court noted that the "practice of charging application fees derives, in part, from the dating industry." Id. at 611. The practice of charging application fees as pretext to charge a credit/application check fee has created "cumbersome practice for tenants and problems for landlords". Id. Since the decision in H Oliveira, we have seen differing approaches to charging administrative/credit fees. Many owners, managers and attorneys have scrapped charging an unregulated administrative/credit screening fee in favor of a regulated pet fee, parking space fee or other unregulated fees. As long as the fees charged are consistent, the fees are generally legal. Importantly, the SJC did not prohibit owners and managers from charging applicants screening fees. Instead, the Court distinguished between application fees and administrative/credit screening fees. Id. at 620 ("The distinction we draw here is between an application fee, which represents consideration for processing an application, and a fee that is not returned if the applicant is not accepted, which represents the risk of loss associated with the screening process … .The first is lawful; the second is not"). Although we have seen responsive landlords and management companies take measures to navigate around the strict prohibition of charging application fees, we expect there to be further interpretive guidance on the issue and expect many owners and managers to discontinue the practice of charging administrative/credit screening fees.
Tips for Landlords and Tenants
It is essential that landlords be aware of the rules governing application fees in Massachusetts. Remember, it is a violation of Massachusetts state law if an application fee is charged, before the application is approved or not. The appropriate course of action for a landlord is to be aware of the law and either comply with the above, or not charge an application fee, until the application has been approved. If this portion of the statute is followed, the landlord will not run the risk of being in violation of the law.
If a landlord does charge an application fee prior to approval or denial of an application, ever so slightly deviating from the statute, they could be charged a statutory allowable amount of $ 10 dollars for the cost incurred to verify the applicant’s credit history. The landlord cannot request more than $ 10 dollars as costs incurred in verifying an application , whether or not the application is approved or denied regardless, of whether you as the landlord have completed a background/credit check of the applicant.
A tenant must know that if charged an application fee in any amount, the charging landlord must provide a receipt to the applicant. The receipt must set forth the amount of the application fee paid, the name of the applicant, and the date charged. If a landlord charges an application fee in excess of $ 50 dollars, they must provide the applicant with a written disclosure of how the application fee will be used. Although this is not required if the application fee is less than $ 50 dollars, landlords should nonetheless consider having these written disclosures available for any fee charged.
