Is an application deposit refundable? What if the applicant doesn’t qualify or changes his mind?
There is difference between an application deposit and an application fee. While the terms seem similar, they cover different issues. .An application fee is almost always charged for application processing but an application deposit is collected only in specific circumstances.
If a landlord collects an application deposit to hold a rental unit for an applicant, a refund of the application deposit will usually depend upon the circumstances of the matter including landlord-tenant statutes, the landlord’s written policies, and the language in the deposit/hold agreement.
If a landlord charges an application processing fee to conduct tenant screenings, including landlord analysis and evaluation of applicant qualifications, an application fee is considered non-refundable. This is generally true even if the applicant is rejected by the landlord. Once the tenant screening process has been initiated, the application fee becomes the landlord’s business funds. If an applicant qualifies to standards and is offered tenancy but declines the landlord’s offer, the application fee is not refundable.
A potential applicant should clarify with the landlord the details of the application process and the terms and conditions of the screening process including fees. Once known, the potential applicant can decide if he has sufficient interest to apply for the rental and be tenant screened. There may be fine print in the application form that could make a difference in his decision to apply.
In some states landlords are required by statute to provide potential applicants with written notice of rental eligibility criteria to ensure applicants know what is expected and can self-elect to apply for a rental. If a potential applicant knows he would not or could not qualify to rental standards, there would be no need to apply and forfeit the application fee.
An application deposit to hold a rental unit can be collected in addition to the application fee. When the landlord holds the rental unit with a deposit from only one applicant, it is off the market and unavailable to other qualified prospective tenants who may have to be turned away. If the applicant later changes his mind and doesn’t accept the rental offer, the landlord may have suffered financial harm through lost business opportunity. In such a case, the landlord may have justifiable reason to retain all or part of the holding deposit.
If an application/hold deposit is collected, there should be a signed written agreement that unambiguously defines the terms of the deposit including the terms and conditions regarding acceptance or rejection of the applicant and whether a refund, full or partial, of the application deposit will be made according to the facts of the matter.