Application Fees and Security Deposits: Understanding the laws applicable to Baltimore rental properties

As a Baltimore area landlord, when can you ask a renter/tenant for an Application Fee? And why should you ask for a Security Deposit? And how much can you ask in either case? And what do you do when a lease ends – which is refundable, which isn’t, and how much can you retain or adjust? For a professional dealing in property management in Baltimore city for any length of time, these are “routine” questions that may not even require second thought. However, for recent rental property landlords, or novice property managers, they can be challenging.

Application Fees

Under existing state of Maryland’s rental/leasing property laws, you – the landlord or rental property owner, and by extension, any Baltimore city property management company working on your behalf  – can charge prospective tenants an Application Fee. Here are some facts about such fees that property owners must keep in mind:

• You can collect an Application Fee, of $25 or less, when a tenant applies for a rental unit in your property
• This amount is non-refundable, and may be used to process the application. For instance, you may use it to pay for a credit check
• Under laws governing property management in Baltimore city, applicants have the right for a refund of any excess amounts (over $25) that is not used towards processing his/her application
• Such excess refund must take place within 15-days of the tenant moving in; or no more than 15-days from you notifying a tenant that the rental will not take place

Security Deposits

From reading the section about Application Fees, it should have become amply clear that a Security Deposit is refundable, unlike an Application Fee. However, there are other rules, regulations and legal conventions surrounding such deposits, that rental property owners must be aware of:

• You charge a Security Deposit as a kind of “insurance” against certain possible events that a tenant may be liable for, including damages to property, failure to pay rent, or any expenses for a tenants’ breach of leasing covenants
• Make sure that you, or your designated Baltimore city property management company, do not charge more than two months’ rent as Security Deposit
• The courts may award renters/tenants three times the excess amount as compensation, plus any reasonable amount as legal fees, if you break the law
• Always issue a receipt when collecting a deposit. The receipt may either be a separate document, or form part of the lease agreement, and must state how much you’ve charged, and that the amount so charged represents an adjustable/refundable deposit. There is $25 penalty for non-issuance of receipts
• Under the laws governing property management in Baltimore city, the money received as Security Deposit must be placed in an escrow account created specifically for this purpose. This money must not be used for any other purpose, except that defined by appropriate laws governing such amounts
• You must return Deposits, less any permissible adjustments, within 45 days of a tenancy ending. Deposits of $50 or more must be returned with simple interest calculated from the date of receipt of the deposit.

When calculating interest payable, be mindful that there are several milestone dates, and associated legally-binding interest rates, to consider. These include prior to October 1, 2004 (4%), prior to January 1, 2015 (3%), on or after Jan 1, 2015 (1.5%). It may also help to understand the background and methodology associated with these calculations.