New Option for Tenants: Fee in Lieu of Security Deposit Raises Renting Costs

6.13.2023 7:05 am 0 Comment(s)

In an effort to enhance flexibility for tenants and landlords, Texas REALTORS® has introduced a revised form, the Addendum Regarding Fee in Lieu of a Security Deposit (TXR 2018), effective July 8. This innovative leasing and property management form allows landlords and tenants to agree on a recurring monthly fee instead of a traditional security deposit. While it offers some flexibility, it is essential to consider the downsides, particularly the increased cost of renting in the long run. 

The Addendum Regarding Fee in Lieu of a Security Deposit (TXR 2018) is an optional form provided by Texas REALTORS® that enables tenants to pay a monthly fee instead of a security deposit. Landlords are not obligated to offer this option to tenants. If they choose to implement this fee structure, the fee becomes a non-refundable monthly payment, payable alongside the rent. However, landlords cannot use the tenant's choice of fee or security deposit as a factor when evaluating lease applications. 

Although tenants have the option to change their minds and pay the security deposit instead, this decision comes with a catch. If tenants decide to exercise this option, they must pay a security deposit equal to the amount offered to new tenants for similar housing on the date they choose to make the payment. 

The fee received by the landlord in lieu of a security deposit can be used for specific purposes outlined in the agreement, such as obtaining insurance coverage for damages and charges the tenant is responsible for or breaches of the lease agreement. However, it is important to note that the fee does not cover insurance for the tenant or modify the tenant's responsibility to pay rent and damages beyond normal wear and tear. 

While this new option may seem appealing for its flexibility, it does have downsides that tenants need to be aware of. One major drawback is that the fee is non-refundable, unlike a traditional security deposit. Instead of potentially getting their money back at the end of the lease, tenants are required to pay a permanent expense. This effectively increases the cost of renting, which tenants should consider when budgeting for their rental payments. 

The non-refundable nature of the fee can pose challenges for tenants who rely on the return of their security deposit for moving costs or as a financial buffer. Without the security deposit, tenants may need to make alternative arrangements or find other sources of funds to cover these expenses. 
Additionally, the fee in lieu of a security deposit has the potential to increase the overall cost of renting. While landlords are expected to set a reasonable fee based on the actual cost of obtaining and administering insurance coverage, there is still room for landlords to set the fee at a higher amount, which could be burdensome for tenants. 

It is crucial for tenants to carefully review the terms and conditions of the fee in lieu of a security deposit and consider the financial implications before making a decision. Understanding the long-term impact of the non-refundable fee is essential to make an informed choice that aligns with their financial situation and needs. 

In conclusion, the option of paying a fee in lieu of a security deposit offers increased flexibility but comes with downsides. The non-refundable nature of the fee and the potential increase in the overall cost of renting should be taken into account. Tenants must evaluate their financial circumstances and make a decision that aligns with their budget and long-term plans. 

FAQ: 

Can landlords require tenants to choose the fee in lieu of a security deposit option? 
No, the fee in lieu of a security deposit is an optional choice for landlords to offer. Tenants have the freedom to choose whether they prefer this fee structure or the traditional security deposit. 
Can tenants switch from the fee in lieu of a security deposit to paying a security deposit later? 
Yes, tenants have the option to terminate the agreement to pay the fee and choose to pay the security deposit instead. The security deposit amount would be equivalent to what is offered to new tenants for similar housing at the time of their decision. 


Can landlords use the fee for purposes other than insurance coverage? 
No, the fee collected from tenants should be used exclusively for obtaining and administering insurance coverage for damages and charges for which the tenant is liable, as well as breaches of the lease agreement. It cannot be used for any other purpose. 
How should landlords handle the notification and claim process for damages or unpaid rent? 
Landlords must notify tenants of any damages or unpaid rent within 30 days after the tenant surrenders possession of the dwelling. The notice should include a written description and itemized list of damages or unpaid rent, including due dates. If the tenant contests the claim and it is deemed incorrect, the landlord cannot file an insurance claim for the voided amount. 
Are landlords required to offer the fee in lieu of a security deposit option? 
No, landlords have the choice to offer or not offer the fee in lieu of a security deposit. It is an optional arrangement that provides flexibility for both parties involved. 

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