Keep up with what’s happening in the Texas rental housing industry

New law giving option to charge a fee instead of a security deposit takes effect September 1

Synopsis

Property owners will have a new option as of September 1 to offer prospective residents a choice between paying a monthly fee in addition to rent instead of paying a security deposit. New legislation provides guidance on offering this option.


Key takeaways

  • A new Texas law, effective September 1, makes it clear that property owners may offer prospective residents the option to pay a monthly fee in addition to their rent instead of paying an upfront security deposit.
  • This new “fee in lieu of security deposit” is optional, and terms and conditions must be spelled out in a written agreement. Property owners are not required to offer this option.
  • Property owners may use this fee to cover the cost of insurance to cover damages and other charges the resident would be liable for under the lease.
  • If the owner does not use the fee to purchase insurance, the total of all fees paid is considered a security deposit and must be accounted for and refunded to the resident at the end of their tenancy.
  • This new law applies to leases entered into or renewed after September 1, 2021. TAA was neutral on this legislation.

A new Texas law which adds requirements for rental property owners who offer renters the option of paying a fee instead of a security deposit is effective for leases entered into or renewed on or after September 1, 2021. While SB 1783 by Sen. Brandon Creighton (R-Conroe) makes clear that owners have the option of providing a fee in lieu of a security deposit, it is not required.  TAA was neutral on this bill.

Specifically, the bill adds Section 92.111 to the Property Code, which allows a rental property owner the option to allow residents to pay a recurring fee instead of a security deposit.

If the owner offers this option to a resident or prospective resident, the owner may not use the renter’s decision to either pay the security deposit or the fee in lieu of a deposit as criteria to determine whether to approve a rental application.

At the time the owner offers the option, the owner must provide the renter a written statement that the renter has the option to terminate the agreement to pay the fee in lieu of a deposit at any time and instead pay a security deposit in an amount that is otherwise offered to new residents on the date that the renter chooses to pay the security deposit. The agreement must also specify the charges for each option (either paying a monthly fee or the full security deposit).

If the renter decides to pay a fee in lieu of a security deposit, it must be part of a written agreement between the owner and the renter. Also, the fee must be in equal amounts and payable at the time each rent payment is due under the lease.

Fee may be used to purchase insurance; specific rules apply

The bill allows an owner to use the fee in lieu of a deposit to purchase insurance for damages and charges that the resident is liable for under the lease. The fee may not be more than the reasonable cost of obtaining and administering the insurance.

If the fee in lieu of deposit is used to purchase insurance, the agreement must clearly specify that the fee is only for securing occupancy without paying a security deposit, that the fee is not refundable and that paying the fee does not “eliminate, release, or otherwise limit” requirements of the lease; and that, unless otherwise specified, the fee does not pay for insurance that covers the resident or otherwise change the resident’s obligation to pay rent and damages beyond normal wear and tear.

The bill also provides that a fee collected under this section of the Property Code is not considered a security deposit if there is a signed agreement as required by the law and the fee is used to purchase insurance for damages and unpaid rent that the renter is liable for under the lease or as a result of breaching the lease. If the owner does not use the fee to purchase insurance, the total of all fees paid is considered a security deposit and must be accounted for and refunded to the resident at the end of their tenancy.

The bill also prohibits an owner who offers the fee in lieu of a security deposit from charging a tenant for normal wear and tear.

An owner may not submit a claim for damages or unpaid rent to an insurer unless the renter is notified of the damages or unpaid rent within 30 days after possession of the dwelling has been surrendered. The notice must include 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 renter challenges the claim for damages or unpaid rent, and it is found by the owner or a court that the claim was incorrect, the debt is void and the owner may not file an insurance claim. If the claim was already submitted for a debt that was voided, if must be withdrawn and if the insurance company has already paid the rental property owner for an invalid claim, the payment must be returned.

If the insurer compensates the owner for damage or unpaid rent, the owner may not seek or collect reimbursement from the renter for any amounts paid by the insurer.

If allowed by a subrogation clause in the insurance policy, an insurer that has paid an owner’s claim may seek reimbursement by the renter for any amounts paid to the owner within one year of the renter’s termination of occupancy. An insurer who seeks such reimbursement must provide the renter with evidence provided by the owner of any damages or unpaid rent, evidence of any damage repair costs that the owner submitted to the insurer, and documentation of the settled claim.

More from August 2021 Member Newsletter

Log in to view members only content.

×