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A new law, Assembly Bill 2493, strictly limits when and how a landlord or agent may charge a potential tenant a screening fee. The main thrust of the law will give a landlord two options:

Option one: Charge a screening fee only for the selected tenant. Screening fees must be returned to all other applicants.
The first option sets no conditions on the landlord’s application process, provided that the landlord agrees to return any charged screening fee to any tenant-applicant not selected for tenancy. This is the simplest option, but it will limit the landlord to charging exactly one screening fee at any given time for a property regardless of how many tenant applications are reviewed.

Option two: Adopt the statutory application procedure and charge a screening fee to all tenant applicants who were considered even if not selected.
The second option will allow the landlord to collect a screening fee from tenant-applicants even if they are not chosen for tenancy, but only if the landlord adopts an application screening process whereby all completed applications are considered in the order received, and as provided in the landlord’s written, disclosed screening criteria.

Let’s break down the second option to see exactly what is required. Under the second option:

All completed applications must be considered in the order received.

Applications must be reviewed according to the landlord’s written, disclosed screening criteria, which must be provided in writing with the application forms. Landlords are advised to make sure that each application is completely filled out and to mark on the application the date and time the application was submitted.

The first applicant who meets the landlord’s established screening criteria must be approved for tenancy. This requirement does not preclude the landlord from verifying the tenant’s information, creditworthiness, rental history and references before offering tenancy.

The applicant must not be charged a screening fee unless their application is actually considered.

A landlord or agent who inadvertently collects a screening fee does not violate this law if a refund is issued within seven days to the applicant whose application was not considered. As an alternative to a refund, the landlord may offer the option of having the screening fee applied to another rental unit being offered by the landlord. Note that Landlords are not required to refund the screening fee if an applicant is denied because they do not meet the established, disclosed screening criteria.

Reviewing applications in order of receipt with a written screening criteria is a long-standing conservative risk-management approach known as “First come, first qualified, first served.” Many landlord/tenant attorneys have recommended this procedure for years as the safest way to deal with fair housing issues and avoid discrimination claims. Since the law requires that each applicant be ensured an equal, objective. and unbiased opportunity to rent, a written screening criteria can be a critical component for achieving this.

Of course, advising owners and property managers to adopt a written screening criteria is much easier than writing one, especially one tailored to specific rental units. While countless articles online explain fair housing issues in the application process and provide examples of how to write a screening criteria, not all of them can be relied upon. These resources can be quite helpful, but it is highly recommended that any owner or property manager crafting a screening criteria have it reviewed by an experienced landlord/tenant attorney.

What is the maximum application screening fee?
The amount of the application screening fee cannot be greater than the actual out-of-pocket costs of gathering information concerning the applicant, including, but not limited to, the cost of using a tenant screening service or a consumer credit reporting service, and the reasonable value of time spent by the landlord or their agent in obtaining information on the applicant. However, the law does prescribe a maximum amount based on the consumer price index. At the time of writing this article, the maximum amount is approximately $63.50.

Using application services
If the tenant is directed to apply through an application service, such as RentSpree, does that constitute the landlord or agent charging a screening fee, which might have to be returned to a rejected tenant? The answer is likely yes. The screening fee law allows a landlord to include the cost of using a tenant screening service in their screening charge. However, directing the tenant to use a particular screening service would still likely be deemed a screening fee charge. If the landlord or agent had adopted “Option 1” (as explained at the start of this article), they would have to reimburse a rejected tenant the cost paid to a screening service.

Credit report copy must be provided to all tenant-applicants who pay a screening fee
When an applicant has paid an application screening fee, a landlord or their agent must provide a copy of the consumer credit report, regardless of whether the applicant has requested it, within seven days of the landlord or agent receiving the report.

Prohibition on screening charges when no unit is available
Finally, AB 2493 prohibits a landlord or their agent from charging an application screening fee when they know or should have known that no rental unit is available at that time or will be available within a reasonable period of time. This provision does not prohibit a landlord from placing prospective tenants on a waiting list, but merely prevents the landlord from charging a screening fee unless they have, or within a reasonable period of time will have an available unit.

Assembly Bill 2493 is codified as California Civil Code §1950.6. It will be effective commencing January 1, 2025.

Information provided by CAR (https://www.car.org/riskmanagement/miscellaneous-contacts/realegal-chart/screening-fee-law)