Generally, it's ok to charge a non-refundable application fee to cover your expenses when determining whether to approve a prospective tenant, so long as the fee is reasonably related to your actual expenses. You can charge more than your out-of pocket expenses to cover your time and overhead, as long you keep it reasonable. Just make it clear to the tenant that the fee is non-refundable regardless of whether they are approved, and keep in mind the more you charge, the more likely it is that the tenant will decide to look elsewhere rather than pay your fee.
This answer is offered as a public service for general information only and should not be relied upon as legal advice.
Under the landlord-tenant provisions set out in Chapter 92 of the Texas Property Code, the landlord has some obligations concerning the application procedure. For example, the landlord (or property manager) has to provide to the lease applicant the tenant selection criteria. If the landlord fails to do so, then the landlord may have to refund the tenant's application fee and security deposit. The landlord may have liability for not refunding an application fee and security deposit under section 92.354. Pertinent provisions of Chapter 92 follow.
Sec. 92.352. REJECTION OF APPLICANT. (a) The applicant is deemed rejected by the landlord if the landlord does not give notice of acceptance of the applicant on or before the seventh day after the:
(1) date the applicant submits a completed rental application to the landlord on an application form furnished by the landlord; or
(2) date the landlord accepts an application deposit if the landlord does not furnish the applicant an application form.
(b) A landlord's rejection of one co-applicant shall be deemed as a rejection of all co-applicants.
Sec. 92.3515. NOTICE OF ELIGIBILITY REQUIREMENTS. (a) At the time an applicant is provided with a rental application, the landlord shall make available to the applicant printed notice of the landlord's tenant selection criteria and the grounds for which the rental application may be denied, including the applicant's:
(1) criminal history;
(2) previous rental history;
(3) current income;
(4) credit history; or
(5) failure to provide accurate or complete information on the application form.
(b) If the landlord makes the notice available under Subsection (a), the applicant shall sign an acknowledgment indicating the notice was made available. If the acknowledgment is not signed, there is a rebuttable presumption that the notice was not made available to the applicant.
(c) The acknowledgment required by Subsection (b) must include a statement substantively equivalent to the following: "Signing this acknowledgment indicates that you have had the opportunity to review the landlord's tenant selection criteria. The tenant selection criteria may include factors such as criminal history, credit history, current income, and rental history. If you do not meet the selection criteria, or if you provide inaccurate or incomplete information, your application may be rejected and your application fee will not be refunded."
(d) The acknowledgment may be part of the rental application if the notice is underlined or in bold print.
(e) If the landlord rejects an applicant and the landlord has not made the notice required by Subsection (a) available, the landlord shall return the application fee and any application deposit.
(f) If an applicant requests a landlord to mail a refund of the applicant's application fee to the applicant, the landlord shall mail the refund check to the applicant at the address furnished by the applicant.
Sec. 92.354. LIABILITY OF LANDLORD. A landlord who in bad faith fails to refund an application fee or deposit in violation of this subchapter is liable for an amount equal to the sum of $100, three times the amount wrongfully retained, and the applicant's reasonable attorney's fees.
You can review the provisions of Chapter 92 at the following address: