Ask Me Help Desk - Binding clause in apartment lease application?

Can a clause within an apartment lease application be binding upon the applicant?

For example, is an application that states "if the applicant fails to execute a valid lease or refuses to occupy the premises upon the agreed upon date, the applicant will be responsible for damages in the amount of one month's rent" legally enforceable?

I realize that a lease agreement is enforceable, but I have never heard of an application being enforceable against the applicant to require a lease agreement to be executed. However, this exact situation has arisen for a friend of mine.

When a person signs a document, any document at all, it means that they are promising to do those things listed in the document. In the case of an apartment application it usually means that the person is promising that everything they wrote in the app is true. It also usually means that the person is promising to take the apartment if the landlord accepts their application.

There is nothing illegal about the landlord putting a penalty into the application form. Since your friend signed it, it is binding on them.

Thank you for your quick response. However, I have to disagree in part with your analysis. Signing an application is not indicating your willingness to be bound in contract, because there is no enforceable contract - no offer, acceptance, mutual assent, and consideration - in existence. An application and application fee merely gives the apartment the right to consider whether they will extend an offer to lease to the applicant. The apartment complex may refuse to lease to the applicant. In that case, no binding contract to lease to the applicant would be found because no consideration or mutual assent exists. Therefore the application fee cannot be construed as consideration - it is merely a processing fee, designed to cover the expense in this very scenario where the applicant decides not to rent.

Given that, is there any other legal foundation for such a clause? I might add that this scenario takes place in Texas, where we enjoy the benefit of the Texas Deceptive Trade Practices Act.

You may not have been aware of this but Lisa is a Real Estate attorney. In any case I totally agree with her analysis.

As she said, when someone signs ANY document, they are agreeing to any terms listed in that document. The only reason to sign a document is to confirm such agreement. And yes there is an "offer, acceptance, mutual assent, and consideration" involved here.

The offer is a request to rent the apartment. The signature is the acceptance of the terms of that offer. Mutual assent comes when the landlord agrees to accept the request to rent. Consideration is any fees listed in the application (contract). If the landlord declines the applicant then they are cancelling the contract. But if the applicant declines to follow through they may be harming the landlord because they have taken the apartment off the market for a period.

But the real point here is that the applicant SIGNED the application. That shows they agreed to the penalties listed in the document. There is no deceptive trade here, unless the clause was totally hidden or obscured.

In seeing your response, this appears like it might have been a homework question. If so, it should have been identified as such. And if it was, you need to review what makes up a contract.

Thanks for the huge grin. :) Are you aware that promises of future performance are sufficient consideration to create a contract? And regardless of whether the application constitutes a contract on the part of both parties, the fact that your friend placed their signature on a document that stated they would be responsible for payment of one month's rent as a penalty for failure to accept the apartment, if offered, creates a legal obligation on their part.

But let's break it down anyway... the offer was the application. The landlord was offering to consider your friend as a prospective tenant for an apartment that was available for rent at $xxx per month. The acceptance of the offer was your friend providing their personal and financial information and the signing of the application. Mutual assent is inferred by virtue of the landlord providing the application and your friend filling out and signing the application and paying the application fee. The consideration was the providing of information, the providing of the application fee, the promise of the landlord to consider the application and the promise of your friend to accept the apartment if offered.

I can't comment as to the applicability of the Texas Deceptive Trade Practices Act since I have not read it or any of the case law pertaining to it, but my impression from the title of the Act is that it requires deception on the part of the party to be charged and I don't see where in your post there has been any deception on the part of the landlord.

I appreciate the responses. To clear up a lingering question - no, this is not a homework assignment. I am a practicing attorney, but in the area of patent law, and thus have little knowledge in the area of real estate law, save what I remember from bar review study (which I've tried to forget).

As to Scott Gem's breakdown: the request (by an applicant) to rent the apartment and the signature on the same application cannot be both an offer and acceptance. I'm sure that was just a typo.

As to Lisa's response: I understand that promises of future performance can amount to consideration - but doesn't the promise of future performance have to be affirmative? In other words, a negative clause such as this one does not give notice to the applicant that he/she is making a promise of future performance. Nowhere in the application did it state that by signing this agreement you agree to rent if you are approved.

The DTPA may come into play, in my opinion, because no layperson would consider an application to be a binding contract. Further, none of the real estate lawyers I spoke with locally had ever heard of such a clause in an application.

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Originally Posted by sarahsponte

As to Lisa's response: I understand that promises of future performance can amount to consideration - but doesn't the promise of future performance have to be affirmative? In other words, a negative clause such as this one does not give notice to the applicant that he/she is making a promise of future performance. Nowhere in the application did it state that by signing this agreement you agree to rent if you are approved.

But there is an affirmative promise here, created by the landlord's clause. The prospective tenant is signing an agreement saying that if they are offered the apartment and they don't accept it, then they have to pay a penalty. Thus, by signing the agreement, they are promising to accept the apartment if it is offered to them.

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The DTPA may come into play, in my opinion, because no layperson would consider an application to be a binding contract. Further, none of the real estate lawyers I spoke with locally had ever heard of such a clause in an application.

I have heard of these clauses before, particularly in large apartment complexes. The question is whether the landlord will go to the effort of suing your friend if your friend doesn't take the apartment. And if the landlord does sue, then IMO that clause would have to be very clear and obvious for a judge to grant the landlord a judgment. If the language is clear then I do think the landlord would win because there are other apartments out there who do not have such a requirement in their application (as per the local RE attorneys you spoke with) and therefore your friend was able to go elsewhere to rent if they didn't want to sign an application containing that clause.

As to whether a layperson would consider the application to be a binding contract, why not? Everyone should completely read and understand everything on a piece of paper before they put their signature on it.

No typo on my part. The application had terms that were listed in the application. The signature was the acceptance of those terms. The submission of the application was an offer.

And I agree with Lisa. A signator is responsiuble for understanding what they sign. If they don't they should have asked for clarification.