As a fellow apartment industry professional, my goal for these monthly REDBOOK Blues articles is to provide FWAA members with insights and resources to address current operational challenges. Last month, we explored workplace safety. This month, our article includes industry best practices for addressing two fee types: 1) fees imposed by local governments and 2) fees associated with resident referrals.
Just a friendly disclaimer, REDBOOK Blues does not provide legal advice. If you need legal advice, contact one of FWAA’s member attorneys (https://www.aatcnet.org/legal-services-program).
This article only examines governmental and resident referral fees. This article will not address all fees. Consult with your supervisor or attorney if you have questions about the various fees your company charges residents.
Government Fees:
Given the backlash against increased property taxes, cities throughout DFW are constantly seeking politically expedient ways to raise additional revenues. Charging apartment owners/operators fees is a politically safe way to generate more money. Recently, the City of Fort Worth staff proposed a monthly $5.65 per unit fee to pay for street repair! Fortunately, FWAA was able to defeat this very adverse proposal. However, apartment inspection, fire inspection, pool, and permit fees remain.
Operational tip: FWAA is creating an online City Transparency Resource to help FWAA members, potential investors, and developers navigate the myriad of city fees and regulations.
Pop quiz: Does Texas law restrict a leaseholder’s financial obligation only to rent? No! State law allows FWAA members to pass through the costs of numerous services and government fees to residents. There are no state laws or regulations that govern the allocation of governmental fees and other services, so FWAA members may opt to bill residents for these costs.
As usual, REDBOOK is a great resource for helping you properly pass through governmental fees and services charged by cities and other entities. Review the REDBOOK article: “Allocating Services and Governmental Fees” https://www.taaredbookonline.org/lease/protections-in-the-taa-lease/allocating-services-and-governmental-fees.
Be sure to use the TAA Lease form addendum “Lease Addendum for Allocating Services and Governmental Fees. This addendum protects FWAA members against the unpredictability of rate increases. This form gives FWAA members the option and flexibility to allocate certain governmental fees and services in a manner that clearly identifies the cost and the method of allocation to the resident and makes any associated bills available to the resident.
This form minimizes the need for owners to speculate on future increases in these costs and increase rents. Instead, the cost will be allocated as the owner incurs it. From a resident’s viewpoint, it helps to delay and minimize unnecessary rent increases. If implementing this form, be sure to do so upon renewal or with new leases.
Operation Tip: This addendum is a fantastic way to inform the residents about the personal impact of government action.
Resident Referral Fees
Most of us, residents included, could use a little extra cash these days. We’ve all got bills to pay. As landlords, we use this desire for money to our advantage by offering our current residents cash to refer a friend to our properties. You’ve seen the signs on your competitor’s properties: “Refer a Friend – Get $25” or “We Pay Referral Fees.”
This marketing effort is mutually beneficial. You lease vacant units, and your residents get extra spending money. You’ve done something nice for your current residents that increases retention and helps increase occupancy. It is a win-win-win, right?
Pop quiz: is paying resident referral fees legal in Texas? No!
When it comes to paying resident referral fees, begin by reading and having all your colleagues and onsite teams read the REDBOOK article “Locator Commissions and Referral Fees.” https://www.taaredbookonline.org/business-practices/assumed-business-names/locator-commissions-and-referral-fees
In this article, TAA’s general counsel explains in detail the prohibitions against resident referral fees and the severe penalties for violating this statute. In summary, The Texas Real Estate Licensing Act (TRELA) directly prohibits the receiving of a referral fee by an unlicensed person (with the exception allowed for merchandise of $50 or less under Texas Real Estate Commission (TREC). The rule effectively opens the door for owners and management companies to pay anyone referral fees in the form of merchandise (or gift certificates for merchandise not redeemable in cash) valued at $50 or less–but not payment in any other form.
However, TRELA indirectly prohibits the payment of referral fees to third parties. Therefore, when an owner or unlicensed management company pays a referral fee, the owner is aiding the third party in violating criminal law. Thus, the owner or unlicensed management company can be prosecuted under the Penal Code for aiding and abetting another to commit a criminal offense.
The bottom line is not to pay residents for referrals.
To fee or not to fee? That is the question. I trust this article helps you understand and implement the right answer.
April Royal, Birchstone Residential, is FWAA’s 2024 Treasurer and Government Affairs Committee Chair.
