A critical risk management policy and practice for housing providers is the duty to stay current with applicable laws governing landlord-tenant matters. Housing providers must navigate a complex system of federal, state, and local law that regulate some, but not all, aspects of the tenant screening and selection process to determine legal compliances applicable to the location of their business.

It is particularly important to be knowledgeable of fair housing laws and tenant screening legislation regarding regulations, restrictions, and prohibitions on the use of criminal records in housing decisions including requirements for individualized assessments.

In April 2016, the U.S. Department of Housing and Urban Development (HUD) published guidance on the application of the Fair Housing Act to the use of criminal history by housing providers for tenant decisioning. The Fair Housing Act prohibits both intentional housing discrimination and housing practices that have an unjustified discriminatory effect because of race, national origin or other protected characteristics. While the Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overbroad criminal history-related bans are likely to lack a legally sufficient justification. Thus, “a discriminatory effect resulting from a policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified, and therefore such a practice would violate the Fair Housing Act.”

HUD cites Department of Justice statistics that nearly one-third of Americans have a criminal record of some sort. Minority populations experience arrests, convictions, and incarceration at rates disproportionate to their share of the general population. Consequently, the use of criminal records-based barriers to housing is likely to have a disproportionate impact on minority home seekers.

The HUD guidance addresses how the discriminatory effects and disparate treatment methods of proof apply in Fair Housing Act cases in which a landlord justifies an adverse housing action, such as a refusal to rent to an individual based on the individual’s criminal history.

While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters of one race or national origin over another (i.e., discriminatory effects liability).

Discriminatory effects liability is assessed under a three-step burden-shifting standard requiring a fact-specific analysis of claims to determine whether a landlord’s use of criminal history to deny housing results in a discriminatory effect in violation of the Fair Housing Act. The three steps are:

1. Evaluating whether the criminal history policy or practice has a discriminatory effect
2. Evaluating Whether the Challenged Policy or Practice is Necessary to Achieve a Substantial, Legitimate, Nondiscriminatory Interest
3. Evaluating Whether There Is a Less Discriminatory Alternative

A blanket prohibition on any individual with a conviction record, regardless of when the conviction occurred, the details of the individual’s conduct, and what the individual has done since then, will not meet the burden of proof.

A landlord may violate the Fair Housing Act if the landlord intentionally discriminates in using criminal history information. Disparate treatment occurs when the landlord treats an applicant or tenant differently because of race, national origin or another protected characteristic. In these situations the landlord’s use of criminal records or other criminal history information as a pretext for unequal treatment of individuals because of race, national origin or other protected characteristics is no different from the discriminatory application of any other rental criteria.

A landlord has a legal duty of care to take adequate measures to protect people and property from unacceptable levels of risk. The criteria for use of criminal history in making housing decisions must be developed with respect to what crimes pose a risk, why such crimes pose a risk, and what constitutes a reasonable time period when the applicant no longer poses an unacceptable risk.

Landlord policies used to make housing decisions that exclude individuals based on criminal history must be tailored to serve the landlord’s substantial, legitimate, nondiscriminatory interest. Where a policy or practice excludes individuals with only certain types of convictions, a landlord will still bear the burden of proving that any discriminatory effect caused by such policy or practice is legally justified.

Individualized Assessment

An individualized assessment may be conducted to determine whether the individual poses a demonstrable risk. The individualized assessment must take into consideration the facts and circumstances surrounding the criminal conduct, taking into account the age of the individual at the time of the conduct, evidence of satisfactory rental history before and/or after the criminal conduct or conviction, and evidence of the individual’s rehabilitation efforts. The individualized assessment allows the applicant to present extenuating circumstances or other mitigating factors regarding the matter.

State and Local Laws

While many states have passed legislation that limits the use of criminal records for employment background screenings, until very recently, there were only a few states that addressed the use of criminal background checks in rental housing decisions. In the last several years however, more states have migrated to fair chance housing policies which regulate and limit the use of criminal background checks in tenant screenings. Fair chance housing laws prohibit the use of advertising language that excludes people with arrest records, convictions, or criminal history. In some cases, fair chance policies broadly prohibit the use of criminal history in screenings. In other cases, ban the box policies require housing providers to remove questions about criminal history from their rental applications and delay criminal history checks until after a conditional lease is offered.

New Jersey

The most recent passage of fair chance housing legislation is the state of New Jersey‘s “Fair Chance in Housing Act.” Regarded as a landmark bill to address issues on a state-wide basis, the Fair Chance in Housing Act prohibits consideration of any criminal record at the initial rental application stage, allows only certain records to be considered after a conditional offer is made, and imposes substantive and procedural standards for withdrawal of a conditional offer. The Act applies to all rental housing providers except owner-occupied premises of four units or less.

Under provisions of the bill, a housing provider before accepting an application fee must provide written disclosure of his policy to review and consider criminal history. The provider must state that an applicant may provide evidence that demonstrates inaccuracies with the criminal record, evidence of rehabilitation, and other mitigating factors regarding criminal history.

A housing provider may not ask nor make an inquiry into a rental applicant’s criminal history prior to making a conditional lease offer to the applicant. An exception is that the provider may consider whether an applicant has even been convicted of manufacturing or producing methamphetamine on the premises of federally assisted housing or is subject to a lifetime sex offender registration requirement.

Even though a conditional lease offer has been made, a housing provider may not consider arrests or charges that did not result in conviction, expunged convictions, convictions vacated by executive pardon or otherwise legally nullified, juvenile adjudications, and sealed records.

To encourage providers to offer housing to individuals with a criminal history, providers are granted immunity from civil liability arising from a decision to rent to individuals with a record, except for a person with convictions for specified violent offenses.

Localities

A number of jurisdictions have enacted fair chance housing ordinances that regulate screening and selection of tenants using criminal history criteria. As examples:

The Seattle City Council passed the “Fair Chance Housing Act” which requires housing providers to include a statement on tenant applications that the provider is prohibited from requiring disclosure, asking about, rejecting an applicant, or taking adverse action based on any arrest record, conviction record, or criminal history except sex offender registry information.

The city of Berkeley California “Fair Chance Access to Housing Ordinance” prohibits the use of criminal history and/or criminal background checks in the tenant selection process for rental housing. It is unlawful to do any of the following with regard to current or prospective tenants:

• Inquire about criminal history,
• Indicate that persons with criminal backgrounds will not be considered for housing, including in rental advertisements, application materials, or verbally,
• Refuse to rent or terminate a tenancy based on criminal history,
• Require disclosure or authorization for release of criminal history,
• Demand higher security deposit or rental amount based on criminal history.

Detroit implemented “Fair Chance Access to Rental Housing”requiring landlords to remove any questions about criminal history from their rental applications. Landlords are not allowed to ask about criminal history during the interview process or conduct tenant background checks until they have offered the tenant a conditional lease.

Cook County Illinois Commission on Human Rights “Just Housing Amendment” uses a three step screening process that requires (1) prequalification checking of credit history, employment, income, payment delinquencies, bankruptcies, etc.; (2) criminal background check which screens only the 3 year criminal history of the applicant (any convictions older than 3 years may not be used to deny a housing application; if a conviction is found, the landlord must conduct an individualized assessment; and (3) applicant notification of approval or denial and right to dispute the denial.

The District of Columbia enacted the “Fair Criminal Record Screening for Housing Act”, requiring housing providers reviewing tenant applications to make a conditional offer before making a criminal history inquiry. Once inquiry is made, the law prohibits housing providers from considering arrests that did not result in conviction, or from considering convictions or pending accusations other than for listed offenses. The conditional offer may be withdrawn only by providing specific reasons in writing for why doing so achieves a substantial, legitimate, nondiscriminatory interest.

Portland has the “Fair Access In Renting” Ordinance that offers housing providers the option to continue to use their current screening criteria with the additional requirement of an individualized assessment prior to denying any applicant. A housing provider may instead choose to use the Low Barrier Criteria screening as set out in the Ordinance. By using the Low Barrier Criteria, the housing provider cannot reject an applicant for criminal history that includes:

• Arrest records (pending charges can still be considered)
• Diversion or deferred judgments
• Convictions that have been judicially dismissed, expunged, voided or invalidated
• Convictions for crimes no longer illegal in Oregon
• Juvenile convictions
• Misdemeanor convictions of any kind for which the dates of sentencing are older than three years from application date
• Felony convictions of any kind for which the dates sentencing is older than seven years from the date of the application

The Minneapolis “Renters Protection Ordinance” addresses criminal history screening by barring certain crime-related events from consideration by landlords, including arrests, diversions or deferrals, and expunged convictions. The ordinance applies inclusive screening criteria or individualized assessment for each applicant. In addition, misdemeanor look back periods are limited to three years and felony look back periods are limited to seven years. The ordinance states that landlords may look back ten years for a number of specific crimes such as assault, arson, robbery, murder, or sexual conduct to deny housing or may consider such crimes a permanent bar.

The above examples of Fair Chance Housing laws provide an overview of the regulations set out by the applicable ordinance. Housing providers are advised to conduct their own due diligence to determine the applicable laws governing their property location(s) to research appropriate statutes and ordinances for full text disclosure of legal requirements and restrictions on the use of criminal records in tenant screenings.

Choosing the right asking rent is a key business decision. Setting the asking rent is a decision that can affect cash flow, property operations, tenant satisfaction, tenant retention, and property valuation which can affect a landlord’s ability to sell or refinance the property. The challenge in setting asking rents is determining a rent range favorable to the landlord yet attractive to potential applicants.

The right rent is a powerful influencer in tenant selection of a new rental. Setting rents below market rents can have a negative impact upon the landlord’s business by reducing cash flow and potentially limiting the landlord’s ability to maintain the property to good condition. Setting a lower rent at the beginning of a lease may make it difficult to raise rent to market rents at time of renewal that are acceptable to the renewing tenant for the current market conditions and comparable properties.

An asking rent that’s clearly above market can lead to prolonged vacancies, increased marketing expenses, and high tenant turnover. A higher asking rent will not necessarily reduce tenant turnover or yield higher profits.

Setting rents is not a singular event. Analysis and evaluation of market conditions, business necessity, and local demographics should be a routine practice for setting asking rents for new vacancy listings or renewal offers. Finding the right range of rents allows a landlord to stay flexible with market rent pricing yet manage potential business financial risks.

The asking rent should be an amount sufficient to cover debt service, reserves for property expenses, and provide cash flow. Minimum rent requirements will differ with the type of property; e.g., single family home, multi-unit housing, and location and condition of the property, Maximum rent requirements, even for the best properties, will at some point become self-limiting. The goal is to develop a range of rent that can appeal to the broadest cross-section of the rental market as adjusted to current market and business conditions.

How does a landlord go about setting his asking rents? The landlord should conduct research on comparable neighborhood rental communities/properties, analyze comparable data by property locations, property condition, unit square footage, floor plans, features, amenities, and listed rents. Assessing forecasted neighborhood growth and projected supply and demand conditions can help the landlord in his business planning for the future.

Factors that influence setting of rents include:

Location: The location of the rental unit/property is always a factor in all phases of property management. Location can influence marketing and advertising, the applicant pool, rental standards, market rent, tenant selection, and tenant retention. If a property is located in a desirable neighborhood comparable in features and services to similar properties, supply and demand conditions could be favorable to set rents that meet or exceed market rents. Proximity to local goods and services such as medical facilities, schools, retail stores, grocery stores, and restaurants could provide leverage to justify a higher rent.

Type of Property: The type of property; single family residential or multi-family housing, is a factor in setting market rents. Single family housing typically can command a higher rent.

Property Construction: Tenants may be more willing to accept a higher rent for new construction properties or recently remodeled units.

Market Demand: Supply and demand conditions may necessitate a downward adjustment in rents if the supply of units exceeds the demand for rentals. Market surveys will alert a landlord to changing conditions and the need to make changes in property management operations.

Square Footage: A 1,000 square foot one bedroom unit is typically more desirable than a 750 square foot one bedroom unit.

Bedrooms and Bathrooms: The number, size, and placement of bedrooms and bathrooms in a unit are decisioning items for a number of potential tenants. A larger unit with more square footage in comparison to other rental units in the area may justify a higher rent.

Amenities: Unit upgrades such as new appliances, flooring, kitchen and bathroom tile and other amenities are more attractive to potential tenants than units without upgrades.

Other factors to consider in setting asking rents include:

Lease Term: The length of the lease term may allow some adjustment of rent if a quality tenant is selected for a multi-year tenancy. A landlord may want to be flexible to a potential tenant request for an adjustment of rent for a custom lease term.

Median Income: The location of the rental unit has certain demographics associated with it, as example, the median income of residents in that geographic area. Setting asking rents in excess of  potential tenants’ earnings abilities will limit the size of the applicant pool, potentially extend time to rent-up, and may have the potential for tenant early departure due to rent defaults. Setting asking rents in line with market rents, while keeping in mind the average income of the expected potential applicant pool, can help fill vacancies quickly and reduce down time.

Market Trends: Market trends, legislative changes, and demographic changes will impact local markets and business practices. Rental policies and practices must be in compliance with current laws.

Occupancy Rate: Comparable analysis should include data on average occupancy rates in neighboring rental communities. .A landlord should review his average occupancy rate to determine if he is higher or lower than the average occupancy rate for local area properties. A higher occupancy rate may be an indication that the rent is set too low or it may be that tenants are satisfied with the landlord and his properties and don’t wish to move. A lower occupancy rate evidenced by frequent tenant turnover may be an indication that the asking rent is not sustainable for the market area or that property operations, including tenant screening and selection, lease terms and conditions, and/or property conditions are not satisfactory to tenants.

Property Condition: A factor in setting asking rents is the condition of the rental property. Poorly maintained properties are not attractive to quality tenants able and willing to pay market rents for well-maintained, quality properties.

Seasonal Demand: Seasonal demand for rental properties can be a factor in the asking rents. Demand is usually higher in the summer months and, correspondingly, asking rents are higher.

Emotions: Choosing a new rental is a big decision for many tenants. The curb appeal of a well-kept rental property, a desirable location, or unique features that appeal to the tenant’s emotions can work in the landlord’s favor to set asking rents a little above market rent yet acceptable to the tenant.

Price-Value Relationship

There is a factor of the perceived value that will be received in exchange for a stated rent price. A prospective tenant weighs the expected value of the offered rental property and services against the listed rent. If the prospective tenant believes that the rental unit is of good value to him, whether it is location, rent, features, amenities, or other livability factors, the prospect may be willing to pay a higher rent.

Research conducted on comparable properties allows a landlord to determine the value range of his properties. While each prospective tenant has a value rating system unique to him, if a prospective tenant must choose between two comparable properties, the prospect will most often choose the property that the prospect believes is the best value. This is an important factor to keep in mind. While rents are a primary decisioning factor, the landlord, the property location, condition, features, amenities, and lease terms and conditions all differentiate one rental property from another and correspondingly its perceived value to the prospective tenant.

Another perception in the market is that higher rents are indicative of a higher standard of living and therefore attract a better qualified prospective tenant. Regardless of the asking rent, all applicants must be qualified to the same rental standards for fair housing compliance. The asking rent does influence to some degree the number of responses that may be received from rental listings. The applicant pool may be limited due to income requirements for qualification.to rental standards. However all prospects and applicants must receive the same consideration for tenancy in a non-discriminatory manner in compliance with the landlord’s pre-screening policy and practices and fair housing requirements.

After adequate research and analysis of comparable properties a landlord should be able to adjust his rents accordingly to the desirability of his units’ features and amenities that are more attractive to potential tents. As examples, units with a garden view are more attractive than units with a view of the parking lot; an open floor plan allows more options for livability; a ground floor unit can be more attractive than a third floor walk-up; or a unit with extra closet space, balcony or deck, or lots of windows can be attractive features that a potential tenant would be willing to pay a little higher rent.

Developing best practices for setting rents that assist in maximizing profit, minimizing vacancy, and aid in the selection of a quality tenant willing and able to pay market rents and maintain the property to good condition is possible when a landlord conducts his due diligence for comparable properties and performs adequate analysis of all influencing factors that affect asking rents.

A landlord must establish tenant screening criteria before accepting rental applications. Once criteria are set, all applicants must be evaluated to the same criteria. The end goal of tenant screening is to install a quality tenant in a legally compliant process. When a landlord develops his screening criteria he does so with the quality tenant in mind. Who is a quality tenant? Many landlords define a quality tenant as the tenant who:

• Pays full and timely rent
• Complies with lease terms and conditions
• Maintains the rental unit to good condition

But how does the landlord know what types of screenings can provide relevant data to qualify applicants to these desired tenant behaviors? What screenings correlate to rental standards and how is the information used to evaluate applicant qualifications?

When a landlord uses consumer reports to make tenant decisions, the landlord must comply with the Fair Credit Reporting Act (FCRA). A consumer report may contain information about an individual’s credit characteristics, rental history, or criminal history. While consumer reports are obtained from a tenant screening services company, verification of current employment, income, and rental housing history is generally conducted by the landlord or his rental staff. As part of best practices screening, a landlord should also contact previous landlords for rental references.

Screening reports provide information to determine if the applicant has:

• Satisfactory credit report
• Satisfactory background check (criminal history)
• Positive rental housing history
• Satisfactory landlord references
• Satisfactory public records (No evictions, bankruptcies, liens, or judgments)

Proof of Identity

When accepting applications, landlords must ask for proof of identity. Many landlords require two forms of identification with one document containing a photograph of the individual. A state issued driver’s license or equivalent identification document with photo is most commonly used for verification of identity.

Full and Timely Rent

Full and timely rent is a top priority for most landlords. Without a stable, consistent rental income stream a landlord may have trouble meeting his own financial obligations. The landlord is motivated to select a tenant who is able and willing to make his regular rent payments on time, every time. Therefore the applicant’s financial condition is an important decisioning factor.

Tenant screenings that can help evaluate the applicant’s financial condition include income verification, employment verification, the credit report, credit score, public records, and landlord reference checks. Financial ability to pay rent and a positive history of timely rent payments may be indicative of a future tenant’s performance of rent responsibility.

Income verification is done to determine if the applicant has sufficient income that provides for housing, living expenses, and contracted debt obligations. A commonly used industry standard is a gross monthly income that is three times the monthly rent. However a few municipalities have passed legislation that sets a lower income to rent ratio. A landlord will need to research current state and local regulations to determine how to set his screening criteria.

Most landlords will conduct employment verification with the current employer for salary/wage earnings and may require copies of the applicant’s most current pay stubs as confirmation of employment and income. The issue of employment and the requirement for proof of employment by providing copies of pay stubs must be researched to determine whether state landlord-tenant statutes and local laws address this issue. A screening criterion that restricts potential tenants to only those currently employed may have unintentional consequences of discriminating against those applicants who have alternate source of income. Potential tenants should be qualified for sufficient monthly income to meet rent obligations. Source of income is a protected class/characteristic in many states and municipalities and landlords cannot reject an application due to source of income, such as Housing Choice vouchers. A landlord can require the applicant to provide documentation of income to show the amount of assistance/income and the schedule of payments.

The credit report can be a valuable, diverse source of information to evaluate the applicant’s financial situation. The willingness and ability of an applicant to pay his debt obligations as agreed is documented in the applicant’s credit report. The report can verify the applicant’s personal information and is a history of the applicant’s credit usage and management of debt obligations including payments history. The credit report contains information that can be used to figure debt to income ratio and compare debt load and rent load for risk assessment. Accounts that have been sent for collection are shown on the credit report as well as accounts that have been charged off. The number of late and missed payments and the delinquency period can be found in the credit report.

Some landlords utilize a credit score as a decisioning factor for qualification of an applicant. A high credit score may be indicative of a good tenant but a low credit score is not necessarily indicative of a bad time. It is a business decision by the landlord to use credit scores or a specified scoring range as part of tenant screening criteria but this requirement should be disclosed to allow potential tenants to self-select before submitting an application.

Past rental history listed on the application and as shown on the credit report provides the landlord with information on previous rentals, length of tenancy, and landlord contact information. The applicant can be required to provide landlord references in order to verify details of a previous tenancy and whether the former tenant would be welcomed back.

Comply with Lease Terms and Conditions

The tenant’s willingness to comply with lease terms and conditions, the landlord’s house rules, and expectations of acceptable behavior for community living can be evaluated by a search of public records, background check, past rental history, landlord reference checks, and the credit report.

A background check, as permissible by state statutes and local ordinances, will provide information on the applicant’s criminal history. A landlord must conduct research for applicable laws to determine the requirements, regulations, and restrictions for evaluation of applicant criminal history. An arrest record that did not result in a conviction is generally not permissible for evaluations. Per guidance published by the Department of Urban Housing and Development (HUD the Fair Housing Act applies to the use of criminal history by providers or operators of housing and real-estate related transactions. A landlord’s policy or practice that restricts access to housing on the basis of criminal history, if it does not serve a substantial, legitimate, non-discriminatory interest of the landlord, or if such interest could be served by another practice with less discriminatory effect, has a disparate impact on individuals of particular race, national origin, or other protected class and is unlawful under the Fair Housing Act.

When a landlord’s policy or practice has an unjustified discriminatory effect, the landlord has violated the Fair Housing Act even when there was no intent on the landlord’s part to discriminate. A facially neutral policy or practice that has discriminatory effect is unlawful if the policy or practice is not supported by sufficient legal justification.

Landlord policies or practices used to make housing decisions that exclude individuals based on criminal history must be tailored to serve the landlord’s substantial, legitimate, nondiscriminatory interest. Consideration must be given to such factors as the nature of the crime, the severity of the offense, the date of the conviction and the length of the time since conviction. Individualized assessment of the applicant’s criminal background history must be conducted to determine if the applicant’s behavior would put other tenants at risk of harm.

If a material lease violation resulted in filing for eviction during a previous tenancy, a public records search will show if a judgment for possession was entered during the eviction hearing or if a money judgment was also entered for unpaid rent and damages.

Contacting landlord references will allow the landlord to determine if the applicant had a history of lease violations, noise and disturbance issues, late or missed rents or was served notice of material lease violations resulting in eviction proceedings. Some landlords will review information provided by the applicant on his application to information known by the previous landlord to determine if there are discrepancies that should be investigated further. Most landlords will question the former landlord to determine if the applicant would be welcome to apply again for tenancy at the named rental property. A satisfactory reference from the previous landlord can be a decisioning influence in considering the applicant for tenancy with his new landlord.

Reviewing past rental history may indicate a need to contact previous landlords in addition to the named landlord reference. If the applicant has moved frequently or there are short time intervals between rentals, it may be advisable to conduct additional screenings to determine if there were rent default issues or lease violations.

Information in the credit report will show collection actions taken against the applicant for unpaid debt obligations. Some credit reporting bureaus now report rent payment data including rent payment history and delinquencies.

Tenant’s Duty and Obligation to Maintain Rental Unit in Good Condition

The lease agreement should contain a clause regarding the tenant’s duty and obligation to maintain his rental unit in good condition and to promptly report any repair and maintenance issues to ensure the property is safe and habitable. By contacting previous landlords named as references, a landlord can ask if the tenant fulfilled his obligation to take good care of the property while in residence. A landlord should also ask if the former tenant’s security deposit had deductions taken for property damage. If so, there is indication that proper care of unit was not done. The landlord may choose to conduct additional research to determine the circumstances of the deduction before making a final decision.

While there can be overlap of information between the different types of consumer reports, verifications and reference contacts, there should be a consistent pattern of information that can be cross-referenced with the application and the information supplied by the applicant during the initial contact/interview. With compliant practices and appropriate screenings a landlord can select a quality tenant who meets rental standards.

Well developed, written tenant screening criteria, legally compliant, consistently used, can reduce fair housing discrimination complaints.

Creating tenant screening criteria customized for business protections requires time and effort to review business requirements, legal compliances, and market conditions. As business circumstances, legislative actions, and rental markets change, so should tenant screening criteria. A landlord must keep legally compliant and stay relevant to local markets to protect his business interests.

Screening criteria should set out minimum qualifications for tenancy that can attract a larger applicant pool. Prescreening interested prospects using the screening criteria can identify stronger candidates for application. Additional screenings and evaluation of qualifications advance qualified applicants to consideration for an offer of tenancy.

Screening criteria provide the means and measures to identify and assess the risk of tenant default. It is the landlord’s responsibility to avoid risk and to manage risk. Without standards in place, there is no objective measurement for proper evaluation of an applicant’s qualifications. Without adequate due diligence, a landlord creates the potential of legal liabilities, lost income, property damage, and costly evictions.

Written tenant screening criteria provide the landlord with the means to simplify and streamline the process of tenant screening. As stated, minimum criteria is a prescreening tool for prospects to self-evaluate their qualifications against the landlord’s criteria. If minimum qualifications cannot be met, there is no reason to proceed further in the application process.

Tenant screening criteria properly implemented reduce the likelihood of a housing discrimination claim. Criteria provide for a fair and objective evaluation process. The decisioning steps are standardized to provide consistent application of qualification criteria, and detailed to provide the measures to be taken. Tenant screening criteria does not require overly complex methodologies but without well-defined decisioning steps and measurable standards, the landlord does not have an effective, productive screening process to qualify applicants. A landlord needs a consistent, measurable, objective tenant screening process to fill rental vacancies with quality tenants.

An important point to remember is the tenant screening criteria and resultant tenant screening policy and practices apply equally to all applicants. There can be no selectivity in choosing what applicants are screened, or what method of evaluation should be used. As noted above, this simplifies the process of tenant qualification and selection.

The tenant screening criteria provide focus on the priority qualifications for tenancy. A checklist can be created for required screenings to make sure an applicant is appropriately screened and evaluated to the written criteria. By utilizing written screening criteria and conducting requisite screenings, a landlord makes an informed business decision for tenancy based on objective findings rather than generalized or subjective reasons. Basing a tenant selection on a good or bad “feeling” from an applicant is an inconsistent decisioning practice that opens a landlord to liabilities and claims of discriminatory treatment of applicants. Without specific standards there can be inherent bias, unconscious bias, or inadvertent discrimination in decisioning. Even if a landlord acts with good intentions, the result is an inconsistent decision pattern that confuses potential tenants regarding landlord requirements and how to qualify to those requirements. A landlord should always remain aware of his language, general behavior, and directed actions in all rental matters that could be misconstrued as discriminatory treatment of prospects and applicants.

It is also important to note that developing tenant screening criteria formulated in clear, concise, but understandable language provides direction to landlord and prospect/applicant in the qualification process. If language is vague or confusing because of legal terms or colloquial use, prospect/applicants may not understand minimum requirements for qualification.

Providing an informational packet to prospects and applicants containing tenant screening criteria, property details, and important rental policies allows a prospect to self-select for application and for prospective applicants to evaluate if property features, amenities, and rental policies meet their rental requirements.

Tenant screening is subject to numerous federal, state and municipal laws. Due diligence is required to ensure compliance with the current regulations, prohibitions, and restrictions that are applicable to the location of the rental property.

A landlord should research his state landlord-tenant statutes and local ordinances to determine if a landlord is required by statute or ordinance to present a written copy of his tenant screening criteria to an applicant during the application process. The statute or ordinance will provide the specific requirements for compliance, such as proof of receipt by the applicant’s signature on an acknowledgment document. Transparency of rental policies and practices to prospective tenants can be of value in defending against claims of landlord discriminatory practices or subjective, biased decision making in tenant screening and selection.

The federal Fair Housing Act prohibits discrimination based on protected classes of race, color, national origin, religion, sex, disability, and familial status in the sale or rental of a dwelling and in other housing-related transactions. Fair housing laws of states, cities, and counties may provide more stringent protections against housing discrimination than does the federal Fair Housing Act.

Written tenant screening criteria provide defense against claims of fair housing discrimination. In today’s changing legislative environments, it can be difficult to keep current with landlord-tenant statutes, local ordinances, federal regulations, and fair housing laws. Should a charge of housing discrimination be filed against a landlord, the landlord has the burden of proof to show there was no discriminatory action or intent. The landlord’s written tenant screening criteria is indicative of his understanding of his legal compliance requirements. A landlord cannot prove a defense of a fair housing claim by citing ignorance of the law, or that he acted with good intentions.

It is a best practice to consult with legal professionals experienced in landlord-tenant matters to ensure all landlord policies, practices, tenant screening criteria, and rental documents are legally compliant, fair housing compliant, appropriate in addressing landlord-tenant issues, and protect landlord interests and the rights of tenants.

In creating tenant screening criteria, many landlords take into consideration the commonly accepted definition of a quality tenant as the tenant who:

• Pays full and timely rent
• Complies with lease terms and conditions
• Maintains the rental unit to good condition

With that in mind, the screening criteria to qualify tenants for tenancy might include:

• Verification of applicant identity with approved photo I.D.
• Verification of current employment
• Verifiable income 2.5 – 3 times monthly rent
• Satisfactory credit report
• Positive rental housing history
• Satisfactory landlord references
• No bankruptcies, liens, judgments
• No evictions
• Satisfactory background check

Based on these criteria a landlord would require an applicant to furnish proof of identity and consent to tenant screenings for a credit report, background check, public records search and verifications of current employment, income, rental housing history, and landlord references.

A landlord must establish tenant screening criteria before accepting rental applications. Once criteria are set, all applicants must be evaluated by the same criteria. It is suggested that the tenant screening criteria be a separate rental document that is noted with date and time first published. The landlord should keep records of the published tenant screening criteria used to evaluate each applicant, preferably in the master rental file and the tenant’s individual rental file. Having a record of screening criteria universal to all applicants, the screenings and verifications done at time of application, and the resulting evaluations in the tenant’s file may prove valuable if at a later date the landlord must defend against a discrimination claim.

If business, market, or legal compliances necessitate a change in tenant screening criteria, additions, modifications or deletions to the established criteria should be documented with the updated date and time notations.

Tenant screening criteria are risk management tools to protect the landlord’s business by providing a consistent, objective tenant screening process to qualify rental applicants. With such tools the landlord can make an informed business decision to offer tenancy to a qualified applicant.

To successfully manage rental property, a landlord must understand the rights, responsibilities, and remedies of landlord and tenant as set out in state landlord-tenant statutes, local ordinances, and federal laws. From due diligence research the landlord creates his rental policies and develops his lease agreement and rental practices in accordance with sound business principles and legal compliances. Due diligence is needed to protect his business interests and to comply with his legal obligations to provide fit and habitable rental housing. The resultant lease agreement is a legal contract that binds landlords and tenants to the stated lease terms and conditions. The policies and practices are the risk management tools for his property operations.

Landlord-Tenant laws protect landlords and tenants by governing and regulating real estate rental transactions. All states have landlord-tenant laws, although there are variances among the states. Most states’ laws are similar, sharing general principles of contract law, property law, and consumer protection statutes. A number of states have based their statutory law for landlord-tenant matters on the Uniform Residential Landlord and Tenant Act (URLTA).

The underlying purposes and policies of URLTA are to simplify, clarify, and make uniform the law with respect to residential rental housing in those states choosing to enact URLTA. The Act governs the rental of dwelling units and the rights and obligations of landlords and tenants including the maintenance and improvement of the quality of rental housing.

General provisions of the URLTA regulate (1) the terms and conditions of the rental agreement, (2) landlord obligations for security deposits, prepaid rent disclosure, possession, and maintenance, and (3) tenant obligations for use, occupation and maintenance of the dwelling unit. The Act also regulates landlord and tenant remedies for noncompliance of obligations and breaches of the lease.

URLTA Duties for Landlords

It is the landlord’s duty to:

• Comply with the requirements of applicable building and housing codes materially affecting health and safety;
• Make all repairs and do whatever is necessary to put and keep the premises in a fit and habitable condition;
• Keep all common areas of the premises in a clean and safe condition;
• Maintain in good and safe working order and condition all electrical, plumbing, sanitary, heating, ventilating, air-conditioning, and other facilities and appliances, including elevators, supplied or required to be supplied by landlord;
• Provide and maintain appropriate receptacles and conveniences for the removal of ashes, garbage, rubbish, and other waste incidental to the occupancy of the dwelling unit and arrange for their removal; and
• Supply running water and reasonable amounts of hot water at all times and reasonable heat between October 1 and May 1 except where the building that includes the dwelling unit is not required by law to be equipped for that purpose, or the dwelling unit is so constructed that heat or hot water is generated by an installation within the exclusive control of the tenant and supplied by a direct public utility connection.

URLTA Duties for Tenants

It is the tenant’s duty to:

• Comply with all obligations primarily imposed upon tenants by applicable provisions of building and housing codes materially affecting health and safety;
• Keep that part of the premises that tenant occupies and uses as clean and safe as the condition of the premises permit;
• Dispose from his dwelling unit all ashes, garbage, rubbish, and other waste in a clean and safe manner;
• Keep all plumbing fixtures in the dwelling unit or used by the tenant as clear as their condition permits;
• Use in a reasonable manner all electrical, plumbing, sanitary, heating, ventilating, air-conditioning, and other facilities and appliances including elevators in the premises;
• Not deliberately or negligently destroy, deface, damage, impair, or remove any part of the premises or knowingly permit any person to do so; and
• Conduct himself and require other persons on the premises with his consent to conduct themselves in a manner that will not disturb his neighbors’ peaceful enjoyment of the premises.

A landlord must research the landlord-tenant statues of the state and local city/county ordinances governing the rental property to determine legal rights, responsibilities, obligations and restrictions that are applicable to his property.

While state and local laws provide certain rights to landlords, how those rights are exercised can be a matter of regulation or restriction by state and local laws or as detailed in the lease agreement. In general, landlords have the right to:

• Select the tenant of their choice. Landlords may set their own tenant screening criteria as long as the criteria is based upon sound business reasons, Fair Housing compliances, and implemented in a non-discriminatory manner. A landlord may not use qualification criteria as a means to discriminate or retaliate against a prospect, applicant, or tenant in any rental matter.

• Set the terms and conditions for tenancy. Unless the property is rent controlled, a landlord may set the terms and conditions for tenancy in accordance with his business policies as long as such policies are legal, non-discriminatory, and do not waive tenant rights as provided by appropriate statute, ordinance, or code. Terms and conditions of the lease agreement can include length of lease term, rents, deposits, repairs and maintenance, remedies for lease violations, pets, parking, and landlord rules and regulations.

• Collect or receive something of value from a tenant in exchange for providing fit and habitable housing. Most commonly rent in the form of money payments according to an agreed upon payment schedule is received by the landlord in exchange for fit and sanitary housing. However as allowed or applicable by statute or lease terms, services provided by a tenant could be exchanged for housing; e.g., tenant provides service as the property manager.
• Enforce lease terms and conditions for lease defaults including tenant rent default, illegal activity, and rules and regulations violations. Remedies include warnings, notices, and legal actions to cure or quit the property which may result in termination of tenancy and eviction.
• Return rental property to private use by landlord or landlord’s family. A landlord is not required to keep his property as a rental property if his personal circumstances change. However there may be state statutes addressing the issue that require the landlord to take certain steps in the notification and termination of a tenancy to return the property to the landlord.

• Sell the rental property. Landlords have the right to sell their rental properties. Rental properties with current tenants can be sold subject to transfer of tenants’ leases to the buyer.

Landlords have the right to:

• Offer and advertise vacant units for rent.
• Pre-screen rental prospects.
• Screen applicants to the landlord’s written rental qualification criteria.
• Select a qualified applicant for tenancy using fair housing compliant practices.
• Collect first month’s rent, security deposit, and other deposits and fees at move-in.
• Restrict a tenant from subletting a rental unit, or sub-leasing a rental unit to an additional tenant.
• Access rental property in a true emergency.
• Access rental property to make necessary or agreed upon repairs, alterations, or improvements, supply necessary services, or show the unit to prospective buyers, after serving tenants with proper notice for landlord entry per statute and lease agreement.
• Deduct unpaid rent or property damage from tenant security deposit.
• Take correction action such as warnings and cure or quit notice for noise and disturbance violations.
• Take corrective action including termination of tenancy and/or filing a lawsuit for eviction for reasons such as:
• Non-payment of rent.
• Material lease default.
• Property damage by tenant.
• Tenant refuses landlord access to property for necessary repairs and maintenance despite service of legal notification.

Landlord rights and responsibilities impose landlord duties and obligations. In some states and in certain circumstances, some responsibilities can be transferred to tenants. However most landlord responsibilities cannot be delegated to others and remain the landlord’s duty. A landlord will need to research state and local laws to determine landlord legal responsibilities and remedies for landlord failure to perform required duties. Generally a landlord has the duty to:

• Maintain a safe and habitable premise. The implied warranty of habitability is a legal doctrine in most states that requires landlords to offer and maintain leased premises in a safe and sanitary condition fit for human habitation for the duration of the lease.

• Abide by the agreements made in the lease or rental agreement. The lease agreement is a legal contract binding landlord and tenant to the agreed upon terms and conditions. A landlord must honor promises made to a tenant in oral agreements for tenancy.
• Comply with requirements of federal Fair Housing Act, state and local Fair Housing Laws, and the Fair Credit Reporting Act.

• Fair housing laws prohibit discrimination in all aspects of the landlord’s rental housing policies and practices including the landlord’s advertising policy and practices. The federal Fair Housing Act prohibits discrimination due to race, color, national origin, religion, sex, familial status or disability. State and local city and county fair housing laws may provide broader anti-discrimination coverage to additional protected classes. Fair housing compliance should always be to those fair housing laws providing the greatest protections against discrimination.
  • The Fair Credit Reporting Act regulates how a landlord may obtain and use a consumer report for tenant screening purposes. A landlord must have permissible purpose, receive an applicant’s permission to obtain a consumer report, provide information on the credit reporting agency used, and inform the applicant if information contained on the consumer report was the basis for denial or adverse action.

• Make required disclosures to rental applicants and tenants. Federal, state, and local laws may require landlord to provide certain disclosures to prospects, applicants, and tenants on rental matters, environmental issues, and consumer privacy and security issues.
• Honor the tenant’s right to quiet enjoyment of the rental property. The covenant of quiet provides the tenant with the right to exclude others from the premises, the right to peace and quiet, the right to a clean and habitable environment, and the right to basic services. The tenant’s right to privacy requires landlord notification to the tenant to request entry to the rental property for stated purposes detailed by statute and lease agreement. A landlord cannot enter the tenant’s unit without tenant permission unless in the event of a true emergency.
• Take only appropriate actions in situations regarding tenant matters. A landlord cannot retaliate against tenants for tenant actions such as complaints to regulatory agencies for repair issues or unsafe living conditions. Retaliation could include denial of essential services or misuse of the legal eviction process in efforts to intimidate or cause harm to tenants.
• Handle all rental housing related matters in good faith and fair dealing. While such practice is a best business practice, in some states statutes explicitly require good faith and fair dealing by landlords in all real estate rental housing matters.

• Manage the tenant’s Security Deposit account according to state landlord-tenant laws regarding the collection, handling, and return of security deposit funds.

By understanding his rights and responsibilities a landlord can more effectively manage his rental property, ensure legal compliance of applicable regulations and requirements, and protect against financial loss, and liability.

Landlords utilize a variety of risk assessment tools and predictive models to help identify potential liabilities and possible threats to business operations. One of the biggest concerns for a landlord is whether a potential tenant could be relied on to pay full and timely rent. Accordingly, to reduce problems associated with rent defaults, a landlord screens an applicant for credit risk. The credit report is the most widely used screening assessment tool to evaluate an applicant’s ability and willingness to pay rent obligations as agreed.

By diligent screening a landlord seeks to determine whether the applicant has sufficient, verifiable sources of income to meet rent and other living expenses and has demonstrated satisfactory credit management in his willingness to meet debt obligations.

Financial ability and satisfactory credit management are at the center of applicant qualification and approval for tenancy. Consumer credit reports are valuable informational resources that provide critical data for financial analysis and evaluation. The information in the credit report should be considered in context of the source and reporting period of contributing creditors, not as an absolute indication of credit worthiness.

Financial Ability

An applicant’s financial situation is often the critical decisioning factor in tenant selection. A landlord will evaluate the applicant’s financial situation based on data from screenings such as a credit report, credit score, income verification, income to rent ratio, debt obligations, public reports and references.

Screening for ability to pay and willingness to pay should be backed by the applicant’s management of his financial resources to meet credit responsibilities. There should be adequate history of the applicant’s commitment to meet his financial duties and obligations.

Income

The ability to make rent is largely dependent upon income sufficient to pay rent, living expenses, and debt obligations. The income to rent ratio of 3:1 is a generally accepted industry standard for income qualification. For some landlords a steady income such as wages from a verified employer may be an important decisioning factor, possibly more so than other factors. While past history of meeting debt obligations is important, the future ability to pay debt is critical.

Financial ability to pay rent can come from various sources of income. Wage earnings are the most common source of income. Other sources of income include self-employment, stocks and bonds, trust funds, mutual funds, spousal or child support, government assistance, and income from rental properties. A landlord must conduct his due diligence for state and local laws regarding fair housing protections against source of income discrimination. A landlord whose income requirement for tenancy is proof of income from W-2 wage earnings is in violation of fair housing laws in some states and municipalities. In many states a landlord is required to disclose his rental criteria for tenancy and must provide applicants with the written standards for supporting documents for income/funds verifications.

Verification of non-earned income, such as interest, dividends, annuities, Social Security or disability benefits, IRA/401(k) pension distributions, other retirement plan distributions, court-ordered agreements for spousal support, child support or as awarded by lawsuits, and other investment cash flow and entitlement items, may be verified through copies of official statements made available to the landlord by the applicant.

Credit Report

Credit reports provide a broad overview of an applicant’s financial status. A consumer credit report as a primary credit screening tool allows a landlord to review the applicant’s credit history, open and closed accounts, and payment history. If the payment history shows slow pays or missed payments it may be an indication that the applicant could have difficulty in making future rent payments.

In analyzing the applicant’s credit report, many landlords focus on items that can be significant indications of credit risk. The frequency of late payments and/or a pattern of late payments on multiple accounts could be an indication of financial difficulty or an indication that the applicant does not take his credit obligations seriously enough to meet payment terms.

A landlord should note whether the credit report contains negative items or potentially negative items, such as collections, accounts past due, or debts discharged. Credit accounts sent for collection or collection accounts that have been charged off can be signs of credit risk that a landlord should not ignore.

The landlord should carefully analyze the applicant’s debt load in relationship to the applicant’s monthly income. If the amount of the applicant’s monthly payments against debt is subtracted from the applicant’s monthly income, is the amount remaining sufficient to meet the rent payment and cover reasonable living expenses?

Credit Score

Traditionally a landlord has utilized the consumer credit report as the key document for measurement of an applicant’s qualifications to rental standards. A scored credit report has been regarded as an objective, measurable, and defensible method of evaluating financial risk to the landlord’s business. The applicant’s use of credit, credit payment history, and debt exposure were set out as indicators of future credit performance.

There are a number of credit scoring models and each model may use different factors to calculate a credit score. A credit score is a general indicator of financial responsibility. It should not be used as an absolute measurement of credit risk.

A credit scoring model looks at how much is owed on all accounts, how much is owed on specific types of accounts, the number of accounts with balances and how much available credit is shown for each account. The proportion of balances to total credit limits for revolving accounts and the proportion of balances to original loan amounts on installment loan accounts will be a consideration in the credit evaluation. In brief, the more money that is owed compared to the credit limit, the lower the score will be.

Generally, a longer positive credit history on an account will have a positive effect on a credit score. Length of credit history considers the time since accounts were opened, the specific type of accounts opened, and the time elapsed since account activity.

The type of credit is also a factor in a credit score. A mix of different credit types, credit cards, retail accounts, installment accounts, revolving accounts, mortgage loans, or personal lines of credit, etc. is considered in evaluating the overall credit risk. Too few accounts or too many accounts of only one type of credit can be indications of potential risk.

Recently opened accounts are given consideration as to the number of new accounts and the type of accounts. New credit inquiries, both the number of inquiries and the time period in which they were made, may also have an effect upon the credit score. Some credit bureau models also give consideration to the re-establishment of positive credit history after past payment problems.

It is more likely that an applicant with a higher credit score will have the ability and willingness to pay as agreed, and less likely to default on his obligations. A low credit score should not automatically disqualify a potential tenant any more than a high credit score would automatically qualify the applicant.

However it should be noted that a credit score is only one part of a comprehensive credit risk assessment. A credit score serves as a general indicator of financial responsibility rather than an absolute measurement of credit risk. It can be used as a predictive model of the applicant’s ability to pay and to pay on time. It is not a guarantee that the applicant will be a good or bad tenant.

References

Landlords can contact rental references to confirm the applicant paid as agreed while a tenant at a former rental address. Credit references can be contacted for those creditors who have extended credit or otherwise established a financial relationship with the applicant but who do not report payments or payment history to the major credit reporting bureaus.

Rental Standards

A landlord must set his rental standards to meet his business requirements. Formalized written rental screening and selection standards set out minimum qualification requirements for tenancy. Typically these requirements specify a minimum gross monthly income, a satisfactory income-to-rent ratio, positive references from previous landlords, satisfactory credit report and debt payment history, no history of illegal drugs or illegal activities, no derogatory public records, and satisfactory background checks.

Setting high rental standards could help minimize risk of lease defaults. However standards that are too high can reduce the applicant pool and extend vacancy periods. Standards should be objective, measurable, and relevant to the applicant’s performance as a tenant. The rental qualification criteria should point to the important issues – the ability to pay timely rent, acceptable credit history, and satisfactory previous landlord references.

Each tenant selection is an informed business decision based on rental standards universal to the landlord’s business. Each and every potential tenant is evaluated using the same standards, in the same established process utilizing the same risk assessment tools.

Standards set by a landlord should take into consideration regulatory requirements, local market supply and demand, business necessity, property location and condition, and the landlord’s ability to carry business risk and his willingness to manage that risk.

Both landlord and tenant are bound to the contract terms of the lease agreement that includes the tenant obligation to pay tent and the landlord obligation to provide habitable premises and ensure the tenant’s right to quiet enjoyment of the premises. Early termination of the lease agreement breaks the contract terms and conditions of the lease.

Breaking the lease isn’t always a simple matter. Depending on the lease terms and conditions, applicable state statutes, remaining term length of the lease and circumstances of the matter, it takes careful consideration of all issues to end the landlord-tenant relationship in a legally compliant manner.

Early termination of the lease contract can be requested by landlord or tenant as a personal or business necessity.

As business necessity, a landlord may need to consider early termination of lease for legal reasons such as:

• tenant material violation of lease terms and conditions – e.g., rent defaults, property damage, or tenant illegal activities;
• lease terms and conditions specifically allowing the landlord to terminate the lease before the contact ending date.

To terminate a lease, landlords must follow the statute requirements of the state where the rental property is located. While each state may vary in requirements for lease termination, commonly, statutes require landlords to notify tenants of the intent to terminate a tenancy. Some states allow tenants the opportunity to cure a lease violation before the landlord can take further action for lease termination while other states allow a landlord to terminate a tenancy without giving the tenant a second chance to cure the violation. Notices commonly used for notification of intent to terminate a lease are pay or quit notices applicable for rent defaults, cure or quit notices applicable for other types of lease violations, or unconditional quit notices which require the tenant to quit the premises immediately without opportunity to cure the default. If the tenant fails to comply with notice requirements the landlord can initiate legal action to evict the tenant.

There can be other reasons a landlord may consider early termination of a lease, such as the sale of the rental property; the landlord’s intent to occupy the rental property as his personal residence, or extensive repair/remodel work to the rental unit that requires the unit to be vacant. For reasons listed above the landlord will need to work with the current tenant to negotiate an agreement for an early release date from lease obligations.

State statutes provide protection for tenants who have legitimate reason to request early termination of their lease. In some states landlord-tenant statutes allow a tenant to terminate a tenancy before the end of term without landlord permission for reasons such as:

• Military Duty – A tenant who is a member of the armed forces, or that tenant’s spouse or dependent, who delivers copies of reassignment or deployment orders to the landlord within the required number of days of receipt of orders.
• Domestic Violence – A tenant who is a victim of domestic violence, sexual assault, unlawful harassment or stalking, and who has a legal protection order or has reported the incident to the authorities.
• Harassment – A landlord or landlord’s agent violates the tenant’s right to privacy and quiet enjoyment of the property by stalking, sexual assault or unlawful harassment of the tenant.
• Habitability Issues – As a remedy to the landlord’s failure to maintain fit and habitable housing resulting in constructive eviction of the tenant.
• Property Damage – The rental property is significantly damaged or destroyed by natural disaster or other reasons beyond the tenant’s control.
• Violation of Privacy Rights to Quiet Enjoyment of the Premises – Intrusiveness of the landlord that violates tenant privacy, such as landlord entry to unit without tenant notification.

In a few states landlord-tenant statutes allow for early termination of tenancy for reasons such as tenant health problems, or tenant need to move to assisted living facilities or elder housing.

However, the most common tenant reasons for requesting early termination of the lease are personal matters such job transfer/relocation, job loss, divorce, serious illness, buying a home, moving in with family member, partner/roommate, other life events or changes in in lifestyle. In most states these reasons are not considered legitimate reasons for early termination of a lease. A landlord should be knowledgeable of the requirements of his state statutes for permissible reasons for termination of lease, notifications of lease default, intent to terminate a lease, and required procedures to terminate a tenancy.

Once the landlord has received notification of the tenant’s intent to early terminate his lease, the landlord should confirm the circumstances regarding tenant’s need to break his lease. The landlord has certain responsibilities to proceed in a legally compliant manner for early lease termination. The tenant should be reminded of his contract obligation for continued rent responsibility under the lease agreement terms. This means the tenant will owe the landlord rent until a new tenant can be found to fill the vacancy. However, the majority of states have statutory requirements or case law that hold the landlord responsible to make reasonable efforts to find a replacement tenant suitable under the landlord’s rental standards. This landlord obligation to actively find a replacement tenant is required regardless of the reason why the tenant has chosen to break his lease. The landlord has the duty to mitigate damages to the current tenant to help reduce the amount of rent that the departing tenant owes under the lease terms. The tenant will be financially responsible for rent payments up until a lease is signed by a new tenant. A landlord’s lease agreement cannot include a clause that waives the landlord’s duty to mitigate damages. While the landlord’s duty to mitigate includes trying to re-rent the unit as quickly as possible, a landlord does not have to prioritize filling this vacancy ahead of other available units nor does the landlord have to take just any tenant. The landlord should conduct his customary tenant screenings to qualify a replacement tenant and to set the offered rent according to his rent policies.

Considerations

A landlord should give careful consideration to a tenant’s offer to find a replacement tenant to fill the vacancy. While the landlord can appreciate the tenant’s good faith offer to bring in a new tenant, it should be the landlord’s policy and practice to exercise control over his business to ensure protection of his tenants and his property in filling a vacancy.

While using the tenant’s security deposit to cover lost rent due to early lease termination could be an option in limited circumstances, using the security deposit for that purpose leaves the landlord without funds to cover any property damage to restore the rental unit to good condition when the tenant departs. Before taking such action, a landlord should conduct due diligence on applicable state statutes regarding the use of tenant security deposits. As needed, consultation with an attorney experienced in landlord-tenant matters may be advisable.

To better protect his business, it can be simpler for a landlord to add an early termination clause in his standard lease agreement. The clause should detail the landlord’s policy and practice regarding a tenant breaking his lease. The subject should be covered during the new tenant orientation to make sure the tenant understands the expectations to fulfill lease terms and conditions, and the consequences of an early lease termination.

The early lease termination policy can include the requirement of a non-refundable early termination fee in lieu of rent responsibility until the unit is re-rented. However the landlord is not obligated to provide such an option and may hold the departing tenant to his obligations for rent until a replacement tenant is installed. With the tenant informed consent at lease signing, if the tenant’s circumstances change and the tenant breaks the lease, there is a set policy that applies to each and every tenant regarding early termination of the lease that helps to avoid claims of discriminatory treatment should one tenant be treated differently than another tenant.

What might be considered a reasonable early termination fee could vary depending on the reasons for terminating the lease, the current rental market, and various other factors affecting the landlord’s business.

It is usually best to calculate the early termination fee based on a conservative estimate of the actual costs of an early vacancy, remembering that there would be a vacancy at the end of the tenant’s lease anyway. Items to consider usually include costs of preparing the premises for the next tenant; lost rent during preparation down-time; marketing and advertising expenses; and lost rent during the marketing period until rent begins from a new tenant. Typically early termination fees range from one to two months’ rent. Payment of the termination fee releases the tenant from rent responsibility for the balance of the lease.

A landlord is not required to include an option for early termination fee and may simply hold the tenant to rent obligations until the replacement tenant is installed. The tenant’s acceptance of an early termination fee is binding on landlord and tenant. Should the landlord not be able to fill the vacancy for several months, the landlord cannot go back to the departing tenant to ask for additional fees.

Documentation

Written documentation is important to record the details of an early lease termination agreement between landlord and tenant and subsequent actions taken by landlord and tenant. It is preferable to require that the tenant provide written notice of intent to terminate his lease with specific details of the circumstances and the scheduled departure date.

Yes, there has been a recent update to the FHA Design and Construction requirements. HUD has adopted 5 new safe harbors, the first update of safe harbors since 2005. Effective March 8, 2021 the following standards are considered safe harbors under the FHA in addition to the 10 currently existing safe harbors:

• 2009 edition of the International Code Council (ICC) Accessible and Usable Buildings and Facilities (ICC A117.1-2009) standard. This standard is a technical standard for the design of facilities that are accessible to persons with disabilities.
• The 2009, 2012, 2015 and 2018 editions of the International Building Code (IBC).

It should be noted that the new HUD guidelines point out that the IBC is a model building code and is not law. The IBC has been adopted and/or modified by various states and cities. The IBC safe harbor applied for FHA compliance must be the model version of the IBC, not a modified local IBC code.

As background, The Fair Housing Act (FHA) requires all covered multifamily dwellings designed and constructed for first occupancy after March 13, 1991 to be accessible to and usable by people with disabilities. The FHA requires seven basic requirements that must be met to comply with the access requirements of the Act. It cannot be assumed that design and construction compliance with local building codes is FHA compliant. There can be conflicts with local codes, new standards, and FHA requirements that create confusion, non-compliance, and possible removal and remediation of non-compliant FHA construction. Generally when there is a conflict between a FHA requirement and applicable local code, the most stringent requirement is required. However there can be conflicts in which neither requirement is more stringent than the other. HUD previously established 10 safe harbors to remedy conflicts. The safe harbor, once selected must be applied to the entire design and construction to establish FHA compliance. Following the requirements of the chosen safe harbor by the entire design and construction team will result in an FHA compliant project.

Fair housing compliance requires accurate, timely information communicated in a non-discriminatory manner. Questions about vacancies, rental policies, property features, amenities, and services can come from various sources, such as walk-ins, telephone, text, email, social media, and advertising. Your best practice to avoid claims of fair housing violations is make sure all staff members  receive proper training on fair housing issues. An effective way to ensure your staff understands fair housing protections is to utilize role-play training exercises to practice compliant responses to inquiries.

As a rental housing provider you must develop your fair housing policy and procedures to comply with the current requirements applicable to federal, state, and local fair housing regulations to reduce your risks of fair housing violations. It is important to note that due diligence for understanding fair housing compliance requirements should also include due diligence for fair housing advertising requirements.

Rental properties, particularly multi-family properties, can receive numerous inquiries on a daily basis regarding the availability of units, rental qualifications, rents, pet policies, or other questions that must be answered in a fair housing compliant manner. When a rental staff member responds to an inquiry, the staff member does so as an agent of the rental housing owner/manager. How the inquiry is answered and the manner in which the response is given must be non-discriminatory, professional and in a manner that does not create a false impression or perception of the rental community and its policies. For example, if a caller inquires about the availability of a two-bedroom unit and is told there is unit availability and schedules a showing, the caller upon visiting the property would expect to be shown a two-bedroom unit. However, if the unit in question was rented immediately after the first inquiry regarding availability, the visitor may perceive he was given false information, perhaps as a pretext for not wanting to rent to him. Any time there is a contradiction in information given by a housing provider or rental staff about rental availability or policies by a housing provider or a staff member, the individual could perceive that there may be housing discrimination issues. A better response to manage this risk to further explain that the information given is accurate only for that specific time. This can be accomplished by using a scripted response such as “a two-bedroom unit is available for showing today but we do not know how long that availability will continue. Someone could view the unit and put down a deposit later today.”

A written prepared script that provides property information such as features, and amenities, updated to current availability of units and fair housing compliant response to commonly asked rental policies can help the staff member respond to questions accurately and consistently in a manner that avoids inadvertent discrimination. Any inquiry from any source must receive the same consistent, accurate, timely response from any staff member who handles the inquiry.

In 2012 and as later amended in 2016, the Department of Housing and Urban Development (HUD) issued the Equal Access Rule that affirmatively stated that housing assisted or insured by HUD must be made available without regard to actual or perceived sexual orientation, gender identity, or marital status. The Rule prohibits inquiries regarding sexual orientation or gender identity for the purpose of determining eligibility or otherwise making housing available and further allows inquiries related to an applicant or occupant’s sex for the limited purpose of determining placement in temporary, emergency shelters with shared bedrooms or bathrooms, or for determining the number of bedrooms to which a household may be entitled.

HUD-funded programs include the Housing Choice Voucher Program (Section 8), public housing, Community Development Block Grants, Housing Opportunities for Persons with AIDS (HOPWA), Supportive Housing for the Elderly and Persons with a Disability and Federal Housing Administration (FHA) insured loans.

Persons who believe they have experienced housing discrimination may be able to pursue a claim under the Equal Access Rule or the Fair Housing Act. Housing providers should note the recent Executive Order that expanded the Fair Housing Act protections against discrimination based on sexual orientation, gender identity, and gender expression in housing and all housing-related transactions.

The 2021 Executive Order 13988 on Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation directs all federal agencies to interpret protections against discrimination based on sex to include discrimination based on sexual orientation, gender identity, and gender expression. The Order  cites the Supreme Court’s 2020 decision in Bostock v. Clayton County, which found that the prohibition on discrimination “because of sex” in Title VII of the Civil Rights Act of 1964 includes sexual orientation and gender identity.

HUD has announced that it will administer and enforce the Fair Housing Act to prohibit discrimination on the basis of sexual orientation and gender identity. HUD will accept and investigate all jurisdictional complaints of sex discrimination, including discrimination because of gender identity or sexual orientation, and enforce the Fair Housing Act where it finds such discrimination occurred. Specifically HUD will conduct all activities involving the application, interpretation, and enforcement of the Fair Housing Act’s prohibition on sex discrimination consistent with its conclusion that such discrimination includes discrimination because of sexual orientation and gender identity.