Landlords Can Now Accept Fee in Lieu of Security Deposit

Texas REALTORS® posted new and revised forms effective July 8, including the Addendum Regarding Fee In Lieu of a Security Deposit (TXR 2018). This leasing and property management form allows the landlord and tenant to agree to a recurring monthly fee instead of a security deposit. Here are answers to your questions about this new form.

What is the Addendum Regarding Fee in Lieu of a Security Deposit and am I required to use it? 

The form is optional. The Texas Legislature passed a bill to allow landlords to accept a monthly fee from a tenant instead of charging a security deposit. This form provides for that. It is optional for the landlord to even offer that option to tenants. Such a fee is monthly and non-refundable and payable at the same time as the rent. The agreement to pay a fee in lieu of a security deposit must be in writing and signed by the landlord and tenant. A landlord may not use a prospective tenant’s choice to pay a fee or security deposit in the determination of whether to approve a lease applicant.

What happens if tenants change their mind and want to pay the security deposit?

Even if the landlord and tenant agree to the fee in lieu of a security deposit, the tenant has the option to terminate the agreement to pay the fee at any time. The tenant would then pay a security deposit equal to that offered to new tenants for similar housing on the date the tenant chooses to pay the security deposit.

What can the landlord use the fee for?

The landlord can use the fee to purchase insurance coverage for damages and charges for which the tenant is liable or for breaching the lease. However, the fee does not include insurance that covers the tenant or changes the tenant’s obligation to pay rent and damages beyond normal wear and tear.

A landlord may not submit a claim for damages or unpaid rent to an insurer for insurance payout unless the landlord:

• Notifies the tenant of the damages or unpaid rent indebtedness not later than the 30th day after the date the tenant surrendered possession of the dwelling
• Includes in the notice a written description and itemized list of all damages, if any, and of unpaid rent, if any, including the dates the rent payments were due.

If the tenant challenges the claim for damages or unpaid rent and that challenge results in a determination by the landlord or by a court that the notice of indebtedness is incorrect, the indebtedness is void and the landlord may not file an insurance claim for the insurance in the amount of the voided indebtedness. If the landlord has already submitted to the insurer a claim for the voided indebtedness, the claim must be withdrawn. If the insurance company has already paid the landlord for the invalidated claim, the landlord must return the payment.

Can a landlord collect an insurance payout and still pursue the tenant for unpaid fees or charges dues under the lease?

No. If an insurer compensates a landlord for a tenant’s damages or unpaid rent, the landlord may not seek or collect reimbursement from the tenant for the amounts that the insurer paid to the landlord.

Can the landlord charge any amount for the fee?

No. A landlord may not charge the tenant a fee that is more than the reasonable cost of obtaining and administering the insurance for damages and charges for which the tenant is liable.

Source: Texas REALTORS®