Curbing Fees: How States and Cities are Addressing Up-Front Rental Costs
Up-front rental costs can be a strain on new and prospective tenants. In a recent blog, we examined how these expenses—application fees, security deposits, broker fees, and first and last month's rent—can exacerbate affordability concerns and potentially distort rental markets. In response to these challenges, a growing number of state and municipal governments have passed legislation largely intended to reduce up-front costs and regulate when they can be charged.
We examined over 30 pieces of legislation. While some of these laws have been on the books for longer, most attempts to regulate up-front costs are new since 2019. This subset isn’t necessarily comprehensive or representative, but the scan allows us to better understand the range of efforts to regulate up-front costs. We find that while the details vary, these policies have been enacted in a wide range of political and market contexts in recent years.
The majority of policies regulate application and tenant screening fees collected for background, credit, and rental history checks. These fees are often a relatively minor expense for prospective tenants, but renters can pay multiple fees on multiple applications, with over half of recent renters (57 percent) submitting two or more applications last year. Most laws we examined, including a Connecticut bill passed in 2023, cap application fees at $50. Some states and municipalities are even more restrictive. In Eugene, OR, application fees are capped at $10, and in Vermont they are banned outright. In some localities, allowable application fees are pegged to the true cost of processing an application. In Illinois and Colorado, application fees are limited to the actual out-of-pocket cost to screen applicants, and application fee payments are portable across different properties for 30 days. Likewise, in Virginia, application fees are capped at $50 for most renters but $32 for tenants in public housing and other subsidized units, plus additional out-of-pocket expenses paid to conduct background and credit checks.
In addition to putting hard caps on the amount charged, some states regulate the conditions under which application fees can be processed and/or must be refunded. In California, landlords must process applications in the order received and accept the first qualified applicant, refunding any payment to applicants not selected. Similarly in Montana, property managers of four or more units must refund any application fee, less any costs incurred, to a tenant that did not sign the lease.
Laws regulating security deposits are also common. These laws limit what property owners can charge as well as the timing and circumstances under which a security deposit must be returned to the tenant. Most laws allow for a maximum security deposit equivalent to one to two months’ rent. Indeed, security deposits are capped at one month’s rent in Alabama, California, Delaware, and Maryland; one-and-a-half months’ rent in Arizona; and two months’ rent (in most cases) in Colorado and Georgia. Some states make exceptions to their caps based on the size of the landlord’s property holdings, whether a unit is furnished, if the tenant has a pet, or if the renter qualifies for certain forms of rental assistance. In Arizona and Hawaii, security deposit refunds must be returned to tenants within 14 days after the lease ends, while landlords have 60 days in Alabama. Over a dozen states and Washington, DC, require landlords to pay interest on security deposits to tenants, though the nature of these interest payments and which landlords are responsible for paying them varies from state to state.
At least one community has attempted to address up-front costs more holistically, capping move-in costs generally and allowing tenants to pay these costs over a longer timeframe. In Shoreline, WA, a city of over 60,000 people just north of Seattle, move-in fees and security deposit payments are collectively capped at one month’s rent. The city’s 2023 law also allows tenants to pay their up-front costs, including 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, to reduce the initial burden of these costs.
Broker fees cover the services a broker provides in matching available units with a tenant and are less common outside of large, higher-cost markets. These fees are sometimes paid by the renter even when the broker is hired by the property owner. Broker fees vary in cost but were often equivalent to one month’s rent in Boston and 15 percent of the annual lease amount in New York City, which can add substantially to costs that renters pay at lease signing. However, in both cities, broker fees in this form were outlawed last year. In New York City, the Fairness in Apartment Rental Expenses (FARE) Act prohibits brokers from charging a fee to tenants, prohibits landlords from requiring tenants to use a broker agent, and requires the property owner to display all relevant fees in their listing. Similarly, Massachusetts recently prohibited brokers from charging fees for new tenants when those services are contracted by, or primarily provided to, the landlord.
Up-front rental costs are a growing concern for state and local policymakers and recent laws aim to benefit tenants amidst record-high unaffordability. These regulations cap up-front costs, instill more transparency in the rental process, and regulate the circumstances in which these payments can be required. While these costs can become exorbitant and create an undue burden for renters, when fair and transparent they serve an important function in the rental market and mitigate the costs that property owners otherwise incur. Policies designed to protect renters should consider these tradeoffs. In some cases, capping up-front costs will lead to higher monthly rental payments. This should, however, bring more transparency to the actual rents paid and enable cash-strapped renters to spread out these costs over time.
