Most real estate agents and landlords in California decide to charge a rental application fee when screening tenants. This is a widely accepted practice that can help cover the direct costs associated with screening tenants.
But the seemingly simple act of collecting rental application fees in California can be a big area of risk for you if you don’t do things the right way. There are a number of really important regulations (mainly found in California Civil Code §1950.6) that govern the way in which you can safely collect screening fees as part of your screening process.
Luckily, we’ve simplified these regulations into the below article so you can easily understand what the rules are. As always, you should consult with an experienced landlord/tenant attorney when deciding on your screening fee policy. This is merely general information, not legal advice.
Why charge a rental application fee?
The point of a rental application fee in California is NOT to make a huge profit. This fee is only meant to cover your screening costs. Most application fees cost between $30 and $50 per applicant.
Generally speaking, the screening fee you can charge is made up of two categories:
- “Out of pocket” costs associated with purchasing and accessing screening reports. This is the most common reason agents and landlords charge a fee. For example, your tenant screening provider charges $30 for you to access screening reports.
- Costs associated with the labor to collect, evaluate, and verify an applicant’s tenant screening package. Agents and landlords do not charge for this as part of the screening fee as often because it can be difficult to quantify. For example, you spend two hours collecting a completed application package, pulling screening reports, and checking references for an applicant. This component can be a little more ambiguous because, as we will see later, some of the California rental application fee regulations impose specific requirements on you.
Now let’s take a look at the specific rules you must follow.
California Rental Application Fee Regulations
What is California Civil Code §1950.6?
The California Civil Code §1950.6 is one of the most important regulations of the residential application fees for California. To summarize this code section, it basically says the following: Upon the first enactment of Civil Code §1950.6, landlords and property managers were not allowed to charge more than $30 per application fee. Now, the law allows a landlord to increase the application fee annually according to what the consumer price index (CPI) is at that time.
Most owners set their application fees lower than the statutory maximum to be cautious and to avoid claims of unfair business practices. A property owner or agent must not keep a screening fee if there was no credit report run and no reference check performed.
What is the Maximum Allowable Screening Fee in California for 2020?
The maximum screening fee you can charge is $52.46 per applicant.
This figure is an increase of $1.52 over the 2019 maximum of $50.94.
There Must be a Vacancy Available
Property owners and real estate professionals cannot charge an application screening fee if there is no current vacancy (See Civil Code §1950.6(c)). This law prevents owners/agents from charging unnecessary screening fees when you “should have known that no rental unit is available at that time or will be available within a reasonable period of time.”
However, if the applicant agrees in writing to run the report even though there are no vacancies, an application screening fee can still be charged.
Married Applicants Must Pay the Same as Single Applicants.
Many agents and landlords would charge married couples a discount to apply (such as $45 per couple instead of $30 per person). This may seem like a nice thing to do for applicants because you are giving them a break. However, please be aware that treating married applicants differently than single applicants could be considered a form of discrimination against single applicants. Be sure that you treat all applicants fairly and equally, even when it comes to the screening fees you charge.
Provide Application Fee Receipts
Applicants in California must receive an itemized receipt showing the screening fee and other costs included in the screening fee you charged (See Civil Code §1950.6(d) and (f)).
Provide a Copy of Consumer Reports when Requested
Applicants who pay a screening fee and make a request are entitled to a copy of the screening reports you pulled. So think twice before you refuse to provide applicants with a copy of the reports they paid for.
Refund any Unused Portion of the Rental Application Fee
If you reject an applicant after you’ve collected an application screening fee, but before completing the screening process, then you need to return the portion of the application fee that was not used. For example, if you charged the screening fee, but never performed the screening process, then you’ll need to refund the applicant for that unused amount (See Civil Code §1950.6(e)).
How can you Collect Rental Application Fees?
This is usually up to you, but many people collect rental application fees in the form of a cashier’s check to be safe. Just be ready with an itemized receipt if you collect any screening fees.
Some online tenant screening services also allow applicants to pay the screening online directly so you don’t have to process any payments yourself. For example, RentSpree allows applicants to pay online using credit, debit or prepaid cards. This provides flexibility for the applicant while reducing the hassle for you to collect fees yourself. Better yet, RentSpree automatically sends applicants an itemized receipt for the screening reports so you don’t have to worry about that either.
California landlords and other real estate professionals cannot charge more than $50.94 in 2019. This fee must cover out-of-pocket expenses for tenant screening, such as screening reports. This fee can also include a reasonable amount for the time devoted to the screening process. If you charge a screening fee, then you must provide a copy of the screening reports if the applicant requests them. Also, you will need to present an itemized receipt.
If you spend less than what was charged in the application fee, then you must refund the difference. You may not charge an application fee if there are no vacancies at the time. Knowing state regulations before you collect a California rental application fee will help you to avoid a costly legal issue.