APPLICATION DEPOSITS

 

Managers and leasing teams invest their time and effort in guiding an applicant through the application process. They may even turn other applicants away or hold the rental for him. After a successful application process (completed application, credit check, and criminal background) the applicant informs you that he won’t be renting. He wants his application deposit back. Under what circumstances can you keep it?

 

Any Actual Damages?

 

At the outset please note we advise that the application deposit be returned unless the manager can show actual damages, that is a financial loss, such as holding the unit while turning away other qualified applicants. An apartment community with an inventory of similar apartments may have difficulty showing this type of financial loss.  

 

Penalties and Forfeitures are Disfavored.

 

Our analysis begins with the recognition that Florida law in general does not look favorably upon contract penalties or forfeitures. Penalties and forfeitures are not enforceable in numerous areas of Florida law, either by express statutory prohibition or by judicial interpretation relying on such concepts as unconscionable provisions.

 

The Documents.

 

With that caution in mind we turn to an examination of the application and any other documents relied upon for the right to retain the deposit. The wording both to avoid the forfeiture and to authorize forfeiture must be clear and unambiguous: the grace period, the time and method of the manager’s application acceptance, the time and method of the applicant’s cancellation, the amount of forfeiture, etc. The burden of proof will be on the manager. Not only will the lack of strict compliance, but also the inability to prove strict compliance, with the terms of the forfeiture be fatal. If the amount to be retained on the application form is left blank, or other sections of the application addressing deposit forfeiture are left blank, this is often a fatal error.

 

The Oral Contradiction.

 

Even a clearly written, unambiguous document can be contradicted by the oral misrepresentations of the manager’s representatives. The applicant will often state that the leasing staff assured him that his application deposit would be returned without mentioning any conditions. A good counter to this claim is a leasing checklist, checked-off and signed by the leasing agent, which includes the disclosure of the application deposit policy. A separate applicant signature line or initial space is often placed next to the forfeiture language for emphasis.

 

Is There An Agreement to Lease?

 

Has the applicant, who has not reviewed the leasing documents before signing the application, entered into any agreement to rent, regardless of a signed deposit forfeiture? The point of the transaction is the rental of a unit. A rental is not accomplished when the application is accepted, but only when the applicant signs the lease. An accepted applicant who in good faith rejects certain lease provisions or any other leasing document provisions (community rules and regulations) has never agreed to rent, but only agreed to enter into negotiations to rent. Rather it is the manager who by refusing to negotiate the lease terms is refusing to rent. The application deposit should be returned.

 

Is the Application Deposit a Security Deposit?

 

Is the application deposit a security deposit under the Chapter 83, The Florida Residential Landlord Tenant Act? Neither the statutes themselves nor the case law answers this question directly. We can postulate that at the application stage we don’t have a rental agreement yet. Without a rental agreement, we don’t have a landlord/tenant relationship. Without a landlord/tenant relationship, Chapter 83 doesn’t apply. Further, FS 83.43(7) defines a rental agreement as providing for the use and occupancy of premises. FS 83.49 addresses money deposited on a rental agreement. A good argument can be made that with no lease agreement, the deposit is not subject to the bank deposit and notice of claim requirements of FS 83.49.

 

The Risk of Litigation.

As you can see from this article the pitfalls in keeping an application deposit are many. For this reason we advise our clients that the application deposit should be returned unless the client can show actual monetary loss. The time, effort and expense to defend a small claims case will outweigh any income derived from tenuous application deposit forfeiture, not to mention the potential for a class action claim.