Generally speaking, trying to market an occupied rental unit is usually problematic at best. There can be potential problems in scheduling work for property improvements or repairs, real estate agent showings, property inspections, or other activities related to listing a property for sale. Despite required advance notification to the tenants, access to the property is often a problem. There is also a consideration that the property may not show to its best advantage when occupied by tenants.

A better plan to market a rental property that could result in the  best price with the least hassle is to wait until the property is vacant, either because of lease expiration or having done a lease buyout, and all necessary and/or desired cleaning, repairing, and/or improving has been fully completed before listing the property for sale.

If you choose to list the property for sale while the tenant is still in residence, it may be a good practice to require that the selling agent does not use on-site signage, or install a lockbox to access entry to the residence. Showings of the property should be by appointment only. The tenant household should be protected by all measures for privacy, safety, and security of persons and property. Keep in mind that the tenant/household has the right to quiet enjoyment of the rental property and the right to privacy.  It is possible that multiple visits will be made to the property by potential buyers and/or their agents (e.g., lenders, appraisers, inspectors, contractors). Restricting access to the property for permissible purpose, visitors accompanied by appropriate personnel, and permission for access granted by the tenant can help lessen tenant concerns about safety and security.

All access to the leased premises requires advance notice of entry in accordance with state law and permission by the tenant. This will require cooperation of the tenant and coordination with the tenant’s schedule and the schedules of visitors and vendors.

When you feel you are ready to put the property on the market, that may be the best time to have a preliminary discussion with your tenant regarding your plans and how those plans might affect them. You should assure your tenant that you will make every effort to minimum their inconvenience for access purposes. You can assure them that their existing lease is in effect until the lease expiration date and that the lease is binding upon a buyer if a transfer of ownership takes place before the lease expiration. It may be a possibility the tenant could ask about early termination of their lease. You should be prepared to handle that discussion with possible options.

You must also keep in mind that sales can fall through, meaning that tenants’ lives must again be disturbed by the process related to the needs for entry. Keeping the tenant informed of events in the listing, marketing, and contract details will help the tenant understand the process and what to expect.

Providing the tenant with written notice of your intent to sell the property is good customer service to help reassure the tenant on the important details to them, mainly that they don’t need to change how they live, their lease agreement is fully binding on a future buyer, their security deposit will be transferred to a new owner through escrow, rent paid past the close of escrow will be credited to the new owner, and they will be notified immediately upon close of escrow and  provided with contact information regarding the new owner.

Yes, the Seattle City Council has passed legislation that prohibits certain evictions during the period December 1 to March 1. The legislation’s purpose is to prevent evictions during the winter months of those tenants who are behind in their rent and may become homeless if an eviction is carried out. The law applies only to rental properties in the city of Seattle. It’s important to note that the law exempts landlords with 4 or fewer rental units.

A tenant may raise a defense to an eviction hearing occurring during the period December 1 and March 1.  However to exercise this defense, the tenant household must have low to moderate income, that is, household income must be at or below the Area Median Income (AMI). The court can dismiss the eviction, stay the proceedings until March 1, require the landlord to refile for eviction at a later date or take some other action except enter an order evicting the tenant.

Tenants will still be held responsible for rent during the months covered by the moratorium including fees and penalties.

An eviction regardless of the time of year is permitted for reasons such as:

• The tenant’s conduct has a substantial detrimental impact on or constitutes an imminent threat to the health or safety of the other tenants or the owner.
• The tenant fails to comply with a 3-day or 10-day notice for a drug-related activity nuisance, or maintenance of an unlawful business.
• The tenant, or with consent a sub-tenant, or guest has engaged in criminal activity on the property or on the public right-of-way abutting the premises. Criminal activity means drug-related activity and other criminal activity that affects the health or safety of other tenants or the owner.
• Removal of the unit from the market after receipt of a notice of violation.
• The owner seeks to reduce the number of individuals residing in the rental unit to comply with maximum occupancy limits.
• An emergency order exists requiring the unit(s) to be vacated.

The legislation covers other provisions such as assistance to tenants renting income-restricted or rent-restricted units and the establishment of a mitigation fund.

A landlord whose property is covered by the Seattle eviction moratorium should conduct his own research to determine full compliance requirements and restrictions.

A landlord’s lease is a legal contract binding landlord and tenant(s) to mutually agreed upon rental terms and conditions for a specific period of time as witnessed by signatures of all parties named on the lease.

The lease must be compliant to federal, state, city and county regulations and requirements. The lease transfers possession, use and enjoyment of the named rental premises from the landlord to the tenant for a specified period of time for a stated amount of rent. The lease furthers sets out in detail the terms and conditions of tenancy, duties and responsibilities of landlord and tenant, and remedies for lease default.

A landlord should customize his lease agreement to protect his business interests. If a rental issue represents a risk or a potential risk to business operations, an appropriate lease clause should be written to address the issue through policy, practice and remedy for default.

The landlord’s lease agreement is the critical business document that governs rental business operations. A compliant lease is the working document that defines and controls the landlord-tenant relationship. When issues arise, the first question asked is “What does the lease say?”

Consequently in drafting a good lease agreement, care should be taken to ensure the lease is not only legally compliant but provides all clauses necessary to protect the landlord’s business. A good lease provides risk prevention practices against known rental risks and the potential of unknown risks. Failing to provide adequate detail of rental policies and practices within the lease or allowing the lease to fall silent on rental issues, can prohibit or restrict the landlord in exercising his rights to enforce lease terms and conditions.

What makes a good lease? A good lease is written from a clear understanding of laws applicable to rental housing matters including but not limited to federal laws such as the Fair Housing Act, the Americans with Disabilities Act, and the Fair Credit Reporting Act; state landlord-tenant statutes; and local rental ordinances. The lease must be in compliance with health and safety codes, occupancy rules, rent control laws, anti-discrimination laws, and consumer rights protections.

A good lease should be sufficiently detailed to provide instruction to the tenant on rental obligations, duties, rules and regulations during tenancy. What should be included in a lease is the landlord’s business decision, but there are common lease clauses used by many landlords in their leases to protect the business.

As examples, a lease may utilize some or all of the following clauses.

• Lease execution date
• Identification of Lessor (landlord) and Lessee (tenant)

• All adults of legal age should sign the lease agreement.

• Identification of the rental premises

• The street address, city, state, and zip code of the rental property should be noted as well as a rental unit designation, building number, and the apartment complex or community name associated with the property. Tenant assigned parking spaces, designated storage units, or other rental privileges granted to the tenant for use during tenancy should also be notated on the lease.

• Term of tenancy

• Fixed term lease with beginning and ending dates

• Month-to-month rental agreement
• Renewal Terms
• Early termination of lease provisions

• Occupancy of rental premises

• Only the named tenants on the lease and their minor children are permitted to occupy the rental premises.

• Use of rental premises

• The use of the rental premises is restricted to residential purposes only. Illegal activities are prohibited.

• Guest Policy

• Written landlord approval is required for extended guest stays. A landlord may set a time limit on length of guest stays. Written approval by the landlord is required for extended guest stays.
• Rents
• Monthly amount
• Date due
• Payment/delivery method
• Grace period
• Late charges
• Last month rent
• As allowed by statute or ordinance, a landlord may require last month rent at time of tenant move-in.
• Security deposit
• Dollar amount collected
• Use of deposit
• Where deposit is held
• Interest rate as applicable by statute
• Reasons for deductions that can be taken
• Procedures for accounting and return of deposit
• Deposit replenishment requirement for damage deduction before end of lease term
• Written approval of landlord required if security deposit may be used for last month rent
• Nonrefundable fees or deposits
• As allowed by statute or ordinance, a landlord may require a nonrefundable such as a cleaning fee.

• Utilities

• Landlord provided
• Tenant responsibility
• Landlord disclosure of shared utilities may be required by statute.

• Repair and Maintenance responsibilities

• Landlord responsibilities
• Tenant responsibilities
  • Tenant required to keep rental premises clean, sanitary and in good condition
  • Tenant required to notify landlord of defective or dangerous conditions on rental premises
  • Tenant required to reimburse landlord for costs of repairs for damages caused by the tenant or the tenant’s guests

• Alterations to rental premises

• Tenant alterations to rental premises prohibited unless authorized by prior written approval of landlord or as provided by law such as reasonable modification. Tenant is prohibited from altering, rekeying, or installing locks or security systems to rental premises unless prior written consent given by landlord.

• Appliances

• Furnished by landlord for tenant use
• Tenant required to furnish own appliances
• Landlord right to access rental premises
• Notification to tenant as required by statute
• Landlord policy and practice for request to enter rental premise
• Permissible reasons for entry
• Scheduled inspections
• Property repairs and maintenance
• Property showing to prospective tenants or buyers
• Repairs or maintenance during tenant’s extended absence
• Emergency situations

• Grounds for termination of lease
  • Lease Defaults

• Material terms and conditions of lease
• Disruptive behaviors
• Excessive noise
• Criminal activity
• Waste and nuisance

• Holdover tenant at lease expiration

• Conversion to month -to- month tenancy
• Automatic renewal with increase in rent
• Other changes in lease terms and conditions including rent increase

• Renters insurance

• Required tenant purchase of renters insurance as a condition for tenancy if allowed by law
• Proof of insurance required at move-in

Leases may also have special clauses:

• Joint and Several Liability

Each tenant is jointly and severally (individually) responsible for the entire rent amount and damages to the rental unit caused by any tenant.

• Severability

If any portion of the lease agreement is held to be invalid, its invalidity will not affect the validity or enforceability of any other provision of the lease agreement.

• Address of each party for service of legal notices
• Sublease and Assignment

• Tenant is prohibited from subleasing or assigning of rental premises.

• Alternative Dispute Resolution
  • Mediation
  • Arbitration
• Abandoned Property
  • Personal property of the tenant abandoned in the rental unit will be handled in accordance with state statute requirements.
• Tenant Absence from Premises
  • Absences from the rental premises for extended period as specified in lease require written notification to landlord.
• HOA
  • Tenant acknowledges receipt of HOA CC&Rs
  • Tenant held responsible to comply with HOA requirements and pay landlord for any penalties incurred

• Attorney fees and Court costs
• Entirety of agreement

The lease agreement, lease addendum, or attachments such as Tenant Rules and Regulations constitute the entire agreement between landlord and tenant. Any changes or modification to the lease agreement must be in writing and signed by landlord and tenant.

Other Lease Clauses or Tenant Rules and Regulations Attachment to Lease

• Pet Policy
• Non-smoking clause
• Move-in Procedures

• Property inspection and checklist
• Fees and deposits collected
• Keys/access codes transferred to tenant

• Property Inspections
• Health and safety inspections
• Termination of Lease and Move-out Procedures

• Tenant instructions regarding move-out responsibilities
• Final property inspection and checklist
• Return of rental premises in good condition to landlord

A landlord’s lease cannot require a tenant to waive his rights under law by agreeing to waive the landlord’s responsibility for the warranty of habitability; agreeing to hold the landlord harmless for breaches of the warranty; or agreeing to hold the landlord harmless for his negligent acts or other actions by the landlord to circumvent landlord-tenant law.

A landlord should always conduct his own due diligence for compliance requirements. The above mentioned lease clauses are representative of commonly used lease clauses but do not constitute legal advice or rental housing recommended business standards.

Many states do regulate the issues of late fees and/or grace periods. As with most landlord-tenant issues, you would need to conduct research for the state and local regulations for your rental property. The regulations by statute can limit the amount a landlord can charge for late payment of rent either as a specific dollar amount, a percentage of a monthly rental amount, or cap an amount or percentage as the maximum fee that can be charged. Statutes can also specify a statutory grace period to extend the time a tenant has to pay rent. Your lease agreement should comply with statutory requirements. As a general rule, even if an issue is addressed by statute, such as late fees, unless your lease agreement is specific to the issue, in this example, the late fees, you will not able to charge late fees to the tenant. You cannot enforce terms and conditions that are not disclosed in the lease and materially required as terms and conditions of the lease.

You may also want to research case law on late fees for your local jurisdiction on what a judge has determined to be reasonable on this issue.

Some examples of regulations regarding late fees:

Texas

An amendment last year to the Texas Property Code prohibits the collection of late fees until any portion of the rent has remained unpaid for two full days after the original due date. The amendment established a safe harbor wherein, if late fees do not exceed a certain percentage, the fee is automatically considered reasonable under the law. Any late fee must be reasonable. Under the safe harbor, for a rental dwelling located in a structure with no more than four dwelling units, a late fee is considered reasonable if the fee is not more than 12% of the amount of rent for the rental period under the lease. For a rental dwelling located in a structure that contains more than four dwelling units, a late fee is considered reasonable if the fee is not more than 10% of the amount of rent for the rental period under the lease. A late fee that exceeds the safe-harbor amount can still be considered reasonable as long as the fee is in line with the damages to the landlord that might be reasonable as a result of late payment of rent.

Colorado

Lawmakers in Colorado have proposed a one-size-fits-all rule to cap late fees for all tenants, and to require landlords to wait until rent is at least 14 days past due before taking any action. After this grace period a landlord could charge the greater of $20 or 3% of the rental amount.

New York State

New York state law regarding late fees and grace period specify:

• Tenants have a 5 day grace period to pay rent – landlord may not demand a late fee unless the payment of rent is not made within 5 days of its due date; landlord must send a late notice, by certified mail, upon failure to receive rent payment within 5 days of its due date.
• Late fees may not exceed $50 or 5% of monthly rent, whichever is less.

District of Columbia

The District of Columbia passed the Late Fee Fairness Amendment Act that regulates the late fees that a landlord can charge tenants. The Act requires:

• A landlord can only charge up to 5% of the rent as a late fee.
• The late fee for a tenant who receives a rent subsidy has to be calculated based on the tenant’s share of the rent.
• A landlord cannot charge a late fee until the rent is at least 5 days late.
• A landlord has to include the maximum late fee in the lease agreement.

Any of the examples cited above will require due diligence verification of the current regulations and restrictions in effect at time of article publication.

Security deposit insurance is an alternative option to a traditional security deposit required by a landlord as part of his rental terms and conditions. A traditional security deposit is typically paid in cash or cash equivalent at the tenant’s move-in and held by the landlord for the term of the lease. If the rental unit is returned to good condition at the end of the lease term, the security deposit is refunded to the departing tenant.

Most landlords require a security deposit equal in amount to one month’s rent. As rents in many areas have continued to rise, the equivalent required security deposit amount has also increased. For some potential tenants, the move-in costs can be a financial burden for the rental housing of their choice. The option of security deposit insurance could reduce the amount of up-front expense for a tenant at move-in.

Security deposit insurance is available from third party companies, as applicable by law and as offered by a rental housing provider. However, unlike the traditional security deposit accounting and return policy, the security deposit insurance premium is non-refundable.

Although treated as an insurance product, security deposit insurance should not be confused with renters insurance. Security deposit insurance is another way to guarantee a tenant’s performance under the lease agreement. If the tenant damages the rental property, a landlord makes a claim on the policy similar to the landlord making a claim for losses from a traditional security deposit.

There are other general terms and conditions that may apply. Terms of service and policy offerings may vary by company and by location. A landlord interested in this service would need to conduct his own research regarding availability and requirements.

The federal Fair Housing Act (FHA) prohibits discrimination in housing and housing related transactions based on the seven protected classes of race, color, religion, sex, national origin, disability or familial status. As of this writing, source of income is not a protected class under the FHA but some states and many city and county jurisdictions have added source of income as a protected class by statute or ordinance. A landlord with property governed by source of income anti-discrimination laws cannot reject an applicant on the basis of the applicant’s source of income as long as the income comes from a lawful source. Lawful sources of income can come from programs, assistance, or benefits such as Section 8 Housing Choice Vouchers, Social Security, Supplemental Security Income, Veteran benefits, alimony, child support, or other type of non-earned income. A landlord may ask an applicant about the applicant’s income and source of income but only in order to determine the applicant’s ability to pay stated rent. All lawful sources of income must be accepted equally by the landlord. The landlord’s screening and selection process must be required of all applicants equally in the same non-discriminatory manner.

A landlord cannot require a larger security deposit, a co-signer, or otherwise burden an applicant with additional qualification requirements based upon the applicant’s source of income that would not be required of another applicant.

Research should be conducted to determine applicable laws for the location of the rental property. A landlord must comply with the requirements that provide the highest level of protection against housing discrimination.

Rental policies and practices, rules and standards, and landlord expectations of renter conduct should be clearly detailed in the lease agreement and clearly communicated to potential tenants wishing to apply for tenancy as co-tenants. Co-tenant applicants must understand the responsibilities and obligations they will have as co-tenants named in the lease agreement and by their signature on the lease agreeing to those lease terms and conditions. By requiring everyone who lives in the rental unit to sign the lease, the landlord is certain that each individual is jointly and severally liable for the full rent and lease agreement terms. Furthermore, the landlord has the option of suing any one or more of the tenants and, the more defendants, the greater the landlord’s chance of collecting rent defaults or damages.

The landlord’s standard rental policy and practice for tenant screening will be conducted for each applicant applying for co-tenancy.

 Lease Agreement

Jointly and Severally Liability Lease Clause

The most important lease clause for co-tenancy is the “jointly and severally liability” clause. Co-tenants both as a group and as individuals are held equally responsible for compliance with lease terms and conditions and equally liable for lease violations by any co-tenant. The landlord can choose to hold all of them, or just any one or more of them, responsible to pay rent or pay for damages. The individual members of the living group should understand that they have full responsibility for the entire group rather than thinking that each co-tenant’s responsibility to the landlord ends when they pay their share of the rent.

While many states make “jointly and severally liability” a fact by statute, an adequate lease agreement will always include a jointly and severally liability clause which makes it clear that the landlord is legally entitled to hold each individual who signed the agreement wholly responsible for all terms of the agreement. Having the clause within the lease prevents the co-tenants from claiming to be unaware of their liabilities.

To further emphasize co-tenant jointly and severally responsibility and liability, a landlord should require payment of rents, fees, and deposits as a single payment payable according to the landlord’s stated payment methods rather than allow each co-tenant to pay their share separately. When the lease agreement stipulates a single payment of the monthly rent amount, it is a condition of the lease that binds all co-tenants. Multiple payments totaling the monthly rent amount creates more administrative work for the landlord and increases risk of rent payment disputes. The landlord does not have to accommodate a “Co-Tenant Agreement” that apportions each co-tenant’s share of the monthly rental amount. Co-tenant agreements are personal arrangements for division of rental expenses and living arrangements. The arrangement is usually a written document typically detailing major rental issues such as how rents, deposits, utilities are shared and paid, as well as housekeeping arrangements shared by co-tenants. The landlord is not a party to a co-tenant agreement and is not bound by the agreement.

There is a likelihood that by separate rent payments by each co-tenant will allow the co-tenants to forget about their jointly and severally obligations for full rent, possibly to claim that the multiple rent payments when accepted by the landlord represented a waiver of the co-tenants jointly and severally responsibility. A landlord should not allow himself to be drawn into problems between the co-tenants particularly financial difficulties. Co-tenants have the responsibility individually and collectively to make required rent payments. Co-tenants may be reminded that a default by one tenant will cause all tenants to be held responsible for the rent default and subject to consequences such as late fees, warnings, and possible eviction.

Similarly co-tenants will be held responsible for payment of security deposits and fees by a single payment made to lease requirements. Co-tenants are responsible among themselves if they wish to apportion amounts to individual co-tenants. The landlord should make it clear that the security deposit is held for the term of the lease agreement and return of security deposit funds will only be after tenant move-out inspection, assessment of the unit’s condition, completion of lease terms and conditions for tenant move-out responsibilities and in compliance with state statutes for security deposit accounting and return. In the event of a co-tenant moving out before the end of the lease term, the landlord will not refund a portion of the security deposit to the departing tenant .The co-tenants are responsible themselves to work out an arrangement regarding the apportionment or return of a security deposit amount to an individual co-tenant.

Changes in Tenancy

A landlord’s lease agreement should also detail the terms and conditions under which a change in tenancy may be allowed.

A landlord’s stated rental policy on co-tenants could state that approval for a new/replacement tenant will be subject to the following conditions:

• New tenant permission must be requested prior to any action by the current tenant,
• Adding an additional tenant must meet occupancy standards of the rental unit,
• A replacement or added tenant will be subject to standard tenant screening and acceptance by the landlord,
• Addition of a co-tenant may require an increase in rent and/or security deposit,
• If the co-tenant request is accepted, all tenants of the unit, both current and proposed, will be required to sign a new lease or addendum to the original lease,
• Each tenant in the rental unit will be jointly and severally liable for the lease terms including the total amount of the rent, and
• A default by any co-tenant may affect tenancy of all tenants.

If a Co-Tenant Leaves Early

If a co-tenant breaks the terms of the lease agreement by moving out, the co-tenant is still liable for the remaining term of the tenancy. If the landlord chooses, the landlord can evict all remaining co-tenants. As a practical matter, it is usually not to the landlord’s benefit to do so as long as the rent gets paid. However, there could be times when the collective financial condition of the remaining co-tenants is such that the landlord considers a vacancy to be preferable to a high risk of not receiving future rents.

Replacing a Co-Tenant

There are times when a roommate wishes to leave early and he or one of the remaining co-tenants is willing and able to find a replacement tenant to take his place. The landlord should require that the departing tenant sign a lease termination agreement. By signing this agreement the landlord and the tenant agree that the landlord is releasing the tenant from the lease and the departing tenant has no right to occupancy. This step is a protection not only for the departing tenant, but also for the landlord in the event that the departing tenant were to claim that he never really intended to leave and the landlord locked him out.

The replacement co-tenant must submit a rental application, consent to the standard tenant screening, and meet the selection criteria. If the replacement co-tenant is approved, all occupants of the rental unit should be required to sign a new lease.

Signing a new lease with all parties reinforces the responsibility of each tenant for full rent and lease terms. It will also make it clear that the departing tenant is no longer entitled to possession of the rental unit.  A new lease is recommended even if the new tenant is completing the departing tenant’s lease term under the very same conditions.

The departing tenant may request a refund of his portion of the security deposit. As noted above, the entire amount of the security deposit should be retained until all tenants have completed the lease term and properly vacated the premises. The departing tenant, the replacement tenant, and the remaining co-tenants will need to resolve the security deposit issue among themselves.

Tenant Disagreements

When disagreements among co-tenants are brought to the landlord’s attention, the landlord should not intervene, attempt to mediate the disagreement, or give advice to any individual. Mediation by a neutral third party can be suggested but the co-tenants must decide among themselves to pursue and accept such a solution.

Eviction

One important fact to remember is that only landlords can evict tenants. A co-tenant cannot evict another co-tenant. Roommates cannot change locks to bar other roommates from access to the rental unit. Lease clauses customarily state that tenants will be in violation of the lease if they change locks without the landlord’s permission.

Lease Requirement for Renters Insurance

Landlords in many states can require that tenants purchase renters insurance as a condition of the lease. With multiple tenants in the rental unit, there is greater likelihood of loss of or damage to a tenant’s personal property. The landlord’s insurance does not cover the tenant’s personal property. Tenants need their own insurance to protect against losses caused by either their own negligence or by factors beyond the tenant’s control. Typically, each tenant will need to purchase their own insurance coverage.

 Other Requirements

A landlord must always research applicable laws and ordinances for the location of his rental property to determine compliance requirements, in particular for co-tenants/roommates. For example, the state of New York has an Unlawful Restrictions on Occupancy Law, commonly known as the “Roommate Law” that allows tenants the right to bring in additional occupants subject to certain requirements.

Most experienced landlords recommend asking the applicant to provide rental history for the past three years. Usually that timeframe will provide one or two prior landlord references in addition to the most recent landlord reference. Reference checking is a simple step but some landlords skip over this critical screening, thinking it unnecessary if the credit report is satisfactory. However contacting former landlords may provide more honest answers to questions about an applicant’s rental history.

Calling landlord references to determine whether the applicant satisfactorily fulfilled his lease obligations is a business safeguard that should be a standard landlord practice. Failing to conduct all due diligence on applicants has the potential for claims of liability and negligence.

While some former landlords could be hesitant to provide detailed tenant information due to concerns of potential liability for privacy and safeguarding of tenant personally identifying information, at a minimum a landlord calling for rental references should be able to confirm the dates of tenancy, rent amount, and notices served.

The landlord wanting to fill his vacancy is trying to determine if an applicant will make a good renter. If the applicant was a good renter for a previous landlord, it could indicate the applicant may be a lower risk candidate for tenant selection. Questions that could be asked when contacting a previous landlord for the applicant’s rental history could be in the areas of:

• Dates of tenancy
• Monthly rent amount
• Notices for late rents
• Security deposit amount
• Warnings for noise or disturbance
• Pets
• Property left in good condition
• Reason for move-out
• Eligible to rent again

Many landlords are of the opinion that landlord reference checking is perhaps the strongest risk assessment tool to predict an applicant’s future rental behaviors, in other words, will the applicant be the “good renter”.

An applicant may request that the current landlord not be contacted for references.  While the tenant’s request could be based upon a valid and acceptable reason, a landlord should not deviate from standard business policies.  If an exception to a rental policy is made for one potential tenant, other potential tenants may be able to claim the landlord was discriminatory in his screening practices.

There are some applicants who have limited rental history. For these applicants a landlord could consider contacting personal references as a screening tool for risk assessment. When traditional rental history is limited or not available, a landlord may consider information from personal references in the decisioning process for tenant selection.

Some questions that could be asked of a personal reference include:

• How does the reference know the applicant?
• How long has the reference known the applicant?
• How frequently does the reference keep in contact with the applicant?
• Is the reference a former roommate or co-tenant?
• Has the reference served as a rental reference before?

Credit History

Landlords have traditionally used the credit report as a cornerstone of tenant screening. A credit report provides the landlord with an applicant’s credit history as reported to a credit reporting bureau as of a certain date. The credit history shows the applicant’s credit usage and credit management. In requesting an applicant’s credit report, the landlord wants to analysis the credit history to evaluate whether the applicant could be a financial risk if selected as a tenant. The landlord is looking to determine whether the applicant has the ability and willingness to fulfill terms and conditions of a lease agreement for full and timely rent payments.

Due diligence by the landlord is again required for compliance with ordinances in some localities. A landlord in some cities may be prohibited from rejecting an applicant on the basis of an insufficient credit score or insufficient credit history.

A landlord screens an applicant to determine if the potential tenant would be able to meet a tenant’s required rent obligations. Accordingly, one of the first tenant screenings to conduct is verification of the applicant’s employment and income. If the applicant cannot qualify under the landlord’s financial criteria, there is no need to proceed with other screening reports.

Generally a landlord can request whatever financial information is required to verify the applicant’s ability to pay under the landlord’s legal, business supported rental criteria, provided the same standards are required of all applicants.

To verify employment status, a landlord can request an applicant to submit acceptable documentation from his employer, such as a current pay stub.

While wage earnings are the most common type of income, non-employment income could be verified by a landlord on a case-by-case basis with a verifiable document, such as an official statement of receipted funds and statement balances. A landlord should verify whether his state statutes or local ordinances have made source of income a protected class. As long as the applicant’s income comes from a lawful source, which includes Section 8 vouchers, a landlord cannot reject an applicant based on the source of his income.

Many landlords use the industry standard of 3:1 income to rent ratio. However, in localities that have enacted ordinances for low barrier screening for rental applicants, the landlord is required to use a 2.5 income to rent ratio for affordable housing rentals or a 2.0 ratio for subsidized rental housing. This is another reason that a landlord should verify his state and local requirements for tenant screenings.