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.
I get that the legislature, in their infinite wisdom, came up with this, but it’s one of the stupidist ideas ever. The tenant has no incentive to leave the property undamaged. The potential return of a deposit is a carrott to encourage good behavior. Tenants will regularly cause damage, & the insurers(whoever they are) will raise premiums & exceptions/deductibles. This is a terrible policy, & I can only hope it dies a quick death. Does TREPAC not lobby for leasing issues? This should have been fought gainst.
Totally agree. Stupid…Stupid…Stupid idea.
Charlie, intersting that as I was doing a rent analysis earlier, I’ve already seen this on 2 listings. In my opinion, a really bad idea!
Agree!!
And this will become a battle over who is going to take this to a court, which is always a losing proposition for the landlord (even if the landlord wins, they still lose!). Time, money and energy and a “pissing match” over a couple of thousand dollars. I don’t see how this could help a landlord and I think Charlie is right–this takes the incentive out of leaving the property in a reasonable condition. I guess the insurance companies liked the idea though.
What are you going on about? This is an optional agreement the Landlord MAY offer, no one is forcing anyone to agree to this. SMH
Yet.
Truth!!!
I agree – this makes no sense to me. Tenants have no reason to leave the property in good condition. Then the landlord is left to deal with insurance that probably won’t pay – IF you can even find a company to underwrite this type of policy. I can’t imagine any landlord would want this option.
Absolutely agree!!! As it is many tenants create damage and figure it will come out of their deposit. We f they pay as they go there is no incentive left. Also insurance companies are a pain to deal with and if and when they pay they will surely miss arise your rates and or cancel you. This is a ridiculous idea.
I agree 100%
Completely agree with you. The only good part about this is “It is optional for the landlord to even offer that option to tenants”
Agreed!
I am NEVER doing this. Period.
Me either!!!!!
Bad idea!!
Ditto—Ditto—and “DITTO” again! This is an awful addendum…no honest need for this one at all!
The Texas Legislature needs to work on something that makes more sense. Sounds like a break-time idea for something to start a conversation over.
Totally unnecessary!! Paperwork upon Paperwork!!!! Please kill this asap.
Walked away from property management after 15 years, or so. This would give me nightmares.
This legislation is as stupid as one come ( we have many of them) . The only positive point is, its up to landlord to offer this.. I personally will never offer this, because I know my property will be trashed and neglected by the end the lease is over, and I have to spend multiple of what I collected to fix things.
Stupid ruling. The reason (and I would suggest the only reason) a tenant leaves the property in good condition is to get their deposit back. Thanks for wasting tax payers money on yet another way to protect the tenant and put the landlords in yet another complicated trail of paper. DUMB!
So… is this something we are going to see in apartment complexes or in single family houses? If single family houses then how are the fee amount limitations going to be gauged? This appears to be something that large multifamily operations would want. Another way to nickel and dime the Tenant. Can someone explain the need for this? I must not be understanding the reasoning here unless it is something that favors one side against the other?
Muddying the lease waters even further. What a complete waste of time and our resources.
I’ve been doing property management for more than 15 years and can see why tenants would want it. I can also see why you might offer if for hard to rent properties for one reason or another. However, there is always a deductible with insurance and so that is a loss; what is this insurance really going to cover-you know they will try and fight not to cover a lot of things; how long is it going to take to get the money-especially if you have to wait for them to not dispute your itemization; and lastly, how much more… Read more »
Exactly
Thank goodness this is optional. What is going down there in Austin? What is in the Kool-Aid?
I wasn’t aware that there was insurance coverage available that would cover this type of damage. Much less, cover it well. What is it called? The only potential challenges I see with it would be cost, underwriting, deductibles, claim disputes, paperwork, and delays in leasing. But other than that, it sounds great. And I agree, the dangling carrot of a returned deposit is often the primary, or even only, reason a tenant puts an effort into their tenancy.
Sure Deposit is one company I have dealt with which covers damages. I would offer residents the choice of say… a $500 deposit, refundable, or a $500 bond which only cost them I think $250, non-refundable. Pricing is set by the bond company. The bonds come in increments of $250 (many years ago). If the tenant doesn’t pay damages immediately, you file on the bond and they pay you up to the bond amount. The insurance company then pursuits the tenant for the money. It is also listed on their credit as owing money to an insurance company, which is… Read more »
Who dreamed this one up???
Just one more example of property management being the “step child” in real estate. Whoever thought this one up clearly has no idea what a nightmare it would be for property managers if we had to offer it vs it being optional. Hope this one dies and goes away.
DISAGREE WITH THE DECISION: I cannot believe this passed; they could not have spoken with any landlord/owner. No incentive here for a tenant to do right and place one’s property back like they found it!
No Landlord in his/her right mind would offer this as an option to the tenant.
What a Bad Idea. I don’t see how this would be good for landlords.I agree that tenants definitely have the tendency to take care of the property because they want their deposit back when they move out.
Really bad law/policy. Not sure what was wrong with the Security Deposit system. If it ain’t broke, don’t fix it.
We get this? Fake ESA’s all over the place and we get this…SMH
I don’t agree to any of this. It’s bad on both sides. Extra monthly payments. Are maybe later paying a deposit. To much work.
Insurance Companies sure know how to influence the legislation process. This is a terrible, bad idea that only benefits the insurance company. Terrible idea! No Bueno – crazy! Who comes with something like that?
^THIS^. As long as we keep re-electing “representatives” who allow lobbying by insurance companies, laws will continue to benefit insurance companies. I assure you, this was definitely not thought up to benefit tenants.
I think that it’s a good idea to have something to help with deposits because of inflation right now. Not all wages have gone up to help support the rent increases and such BUT renters insurance covers damages. Property owners insurance covers damages and unpaid rent if they have the correct coverage. People not having a security deposit paid does not mean they are going to destroy a place. I mean more than half of private landlords and I can tell you some large apartment communities that never kept deposits separate and they never refund the deposits because they spend… Read more »
TAR should have fought this for the sake of the landlords, renters and all involved in a rental transaction. Horrible idea!
It sounds like those commenting are primarily from landlords and I can see why this type of situation could be problematic on their end. So what would any of you who think this is a bad idea propose to help people get into a property? I know someone who’s an engineer moving from an area with a much lower cost of living. He’s only been in the work force a couple of years and given the current economy, has not been able to save enough for deposits. What is a good solution to help those in his shoes? An even… Read more »
Is there a cap on how much they can charge? They wanted $2500 jetty deposit paid over 18 months at $24 added to rent plus I had to get renters insurance on top of that. Plus $150 application fee I paid and did not get back due to I was not aware of any of this and did not sign a contract . I was mislead and I’m low income disabled. I had section 8 and she new apt was to expensive and the pha would not raise my housing amount to match the zip code not give the deductions… Read more »