McAlister’s Deli “Service Fee” Strategy: Applicable to Rental Homes?

 

The (FTC) complaint alleges that (a large property management company) advertised monthly rental rates that failed to include mandatory junk fees that could total more than $1,700 yearly… These undisclosed fees ranged from “services” such as “smart home” technology and “utility management,” to air filter delivery and internet packages. Renters could not opt out of paying these fees.

(www.FTC.gov)

 

Some friends and I meet for a Bible study on Monday nights at the local McAlister’s Deli.  After buying my sandwich one night, I started to peruse my receipt after paying.  I was trying to figure out why my regular sandwich cost so much and looked at the bottom of the receipt.  I saw the tax amount (can’t dodge that!), but above it was an itemized “Service Fee”.  And here I thought I had just picked the sandwich up at the counter…

 

I clicked on an icon next to the aforementioned “Service Fee” and it offered a fuller explanation.  “This fee is used to help pay for the restaurant’s app and website.”  Surely, companies can’t charge for that as a mandatory fee.

 

Wait- or can they?

 

I always thought companies were only allowed to upcharge under the condition that they added more value.  If McAlister’s allowed me to add another slice of cheese to my sandwich, I’m fine with them charging me more.  If I wanted a bigger drink than what is in their value meal, I’d expect to pay more.  But ordering on their app or website?  Isn’t maintaining the on-line ordering portals the cost of doing business in today’s environment?  And isn’t it cheaper and easier for them if I use them?

 

The line on chargeable value has gotten blurred in rental real estate as well.  As property management companies have piqued Wall Street’s interest of late, maximizing revenue is being stressed and companies are getting really “creative”.  Now I’m all for “revenue enhancement” as making more money is generally good.  However, fees should be generated by providing tenants voluntary options that could make their lives easier or give them greater flexibility; mandatory fees for unwanted or unwarranted services could easily cross a line (see the FTC blurb above detailing the “value-added services” that incurred a $48M fine).

 

We are starting to have tenants ask us things like, “Is the rent really $1,800/month or are there hidden fees that are not mentioned?”.  Being that these questions are being asked at all means this practice is becoming prevalent; legislation and more enforcement is probably on the horizon.

 

Landlords and property managers all aim to maximize revenue for their real estate investments and rightly so.  However, we need to be cautious and make sure a fair value proposition is made.   If any fees are questionable and wouldn’t withstand scrutiny, they should be scrapped.  Landlords should be on notice and make sure general business practices on add-on fees stay on the right side of the law.  “Service Fees” for common technology usage may only work in the food industry.

 

Happy Landlording!