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Renters beware: Some Iowa City-area landlords charging 'reservation deposits'

Along with application fee, some apartments require reservation deposit that is nonrefundable if applicant chooses to live elsewhere

A “For Rent” sign. (REUTERS)
A “For Rent” sign. (REUTERS)
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IOWA CITY — Two Iowa City lawyers are warning renters about reservation deposits being charged when a prospective tenant applies and then kept if the person opts for another apartment.

“It’s sort of like a fungus,” said Christopher Warnock, an Iowa City lawyer who specializes in landlord-tenant cases. “It’s starting to grow.”

Warnock filed a small claims case last year on behalf of Sarah Smith, who applied to live in a Tiffin apartment managed by Haverkamp Properties, an Ames company. She was required to pay a $700 rental application deposit, which she thought would be refunded if she did not sign a lease, according to court records.

But when Smith decided a few days later to not rent the Tiffin apartment, Haverkamp Properties kept the $700.

Warnock argued in court Haverkamp should not only give Smith back her money, but pay $5,000 in punitive damages to encourage the company to stop charging a reservation deposit.

Magistrate Karen Egerton didn’t go along with Warnock’s full argument and did not award damages, noting Smith admitted she had not read the entire contract. But Haverkamp agreed to return Smith’s money.

Peter Persaud, a state public defender who works in Iowa City, said a former client came to him earlier this week with concerns about a reservation deposit required by Barker Apartments, an Iowa City-based company that owns several apartment complexes in Iowa City and Coralville.

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The woman had applied to live at Parkside Manor in Coralville and paid an $800 reservation deposit, Persaud said.

“On the same day or day after, she goes back in and says she’s no longer interested,” Persaud said. But the apartment management company did not return the $800.

The woman called her bank and stopped payment on the check, Persaud said. But now, she is worried the property management company will come after her for the payment.

“I just found it outrageous on an application to rent an apartment, they would have this reservation deposit,” Persaud said. “Who ever heard of that before?”

Jim Barker, owner of Barker Apartments, said the company requires a reservation deposit so it can take the apartment off the market while an application is being reviewed and until the lease is signed. He said the company has not received complaints about the wording of the applications, but that he would look into the situation that Persaud described and “do what’s fair as we always try to do.”

“We believe it is more tenant friendly than treating this as a non-refundable application fee,” he said.

Reservation deposits, or holding deposits, aren’t completely new.

A 2014 Los Angeles Times article said these deposits, which landlords request to reserve the rental unit until the tenant moves in and starts paying rent, cause “much grief and confusion.” The writer, a conflict resolution expert in the San Francisco Bay Area, said a knowledgeable landlord will have a separate agreement for the holding deposit and explain how it will be executed if the prospective tenant goes elsewhere.

Reservation deposits often become the tenants’ security deposit if he or she moves in.

Ed Faber, treasurer for Landlords of Linn County, said he hasn’t heard of this type of deposit in Linn County, but owners of Iowa City complexes might feel the need to recoup their costs if prospective tenants do not take the apartments.

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“If you’ve got a high-demand market, you’ll see some of those things because they do lose out if you’re taking it off the market,” he said.

When The Gazette asked Haverkamp whether the company still requires reservation deposits, it replied with the statement:

“We follow the Uniform Residential Landlord and Tenant Law. It is important for applicants to read all of the terms and conditions while filling out an application or signing a lease.”

l Comments: (319) 339-3157; erin.jordan@thegazette.com

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