The utilization of post-hire risk monitoring policies, procedures, and practices may be the long-term due diligence complement to an organization’s pre-employment screening policies, procedures, and practices.

Post-hire risk monitoring is the process of conducting periodic background checks on employees after they are hired. The post-hire screening process is also known as infinity screening or continuous screening. Post-hire monitoring of life events of employees on a periodic or on-going basis helps to protect the organization, its business, and the workplace from insider threats from criminal activities.

Employee criminal acts can create significant risks for employers. Risks may include:

• Theft
• Embezzlement
• Inventory shrinkage
• Identify theft
• Industrial espionage
• Data breaches
• Sexual harassment
• Workplace violence
• Organization brand and reputation damage

Employee problem behaviors can lead to claims of negligent hiring or negligent retention. The legal doctrine of negligent hiring holds employers to a duty of care to assess the nature of employment, the degree of risk the employment poses to third parties, and to conduct reasonable investigations to ascertain the applicant is competent and able to perform job duties. Duty of care extends to reasonable measures to ensure the safety and security of the employee workforce. The employer can be held responsible for the conduct of the employee if the employer failed to use due care in the hiring and retention of the employee. The burden is on the employer to be alert to potential risk issues and to take appropriate steps to resolve matters in a timely, responsive manner. The organization cannot cite lack of knowledge as a defense against claims of negligence. The courts will hold the organization to the legal doctrine of respondeat superior – the organization should have known.

Employers utilize pre-employment screenings to help reduce their risks when hiring. The question for some employers is how to reduce their risks after an employee is hired. Shifting some of the focus from threat of external risks to threats posed by internal risks provides for a more comprehensive risk management strategy. While pre-employment screenings contribute to a more informed hiring decision, post-hire monitoring provides for a more informed employee tenure. By proactively identifying employee risky behaviors during time of employment, employers are able to reduce their exposure to liability.

The dynamics of the employee/employer relationship, market demands, and corresponding business changes in job roles and responsibilities can have an effect upon the employee at work and his life outside of work. As things change, so might the employee.

The fact that an applicant passed the pre-employment screening does not guarantee that the employee will not be a risk in the future. A good hire should become a good employee. However, an employer cannot foresee employee future behaviors or forecast probability of risk. To keep his company safe, an employer must continue active due diligence on known and reasonably foreseen threats. Post-hire monitoring of current employees is a threat assessment tool.

Good organizations will monitor the fit between the employee, the job, and the organization. Post-hire screenings can be an objective risk assessment tool to aid in the long-term employment decision. Changes in employee life situations may alert the employer of potential risks which should be addressed.

Before developing and implementing a post-hire monitoring or continuous screening policy, employers must conduct a different type of due diligence. There are many considerations – legal, industry, and corporate business – that must be researched for an informed decision.

Seeking legal counsel to provide guidance on a number of issues may be advisable. Researching applicable federal, state, and local laws regarding the use of background screenings for employment purposes will determine if such screening/monitoring is permissible by law and the type of permissible screenings. There may be industry rules and regulations for certain job positions that will be a governing factor in policy formulation. Legal advice may be needed to protect employee rights as well as employer rights. The screening policy must be legally compliant, non-discriminatory, clear in language, and detailed in terms and conditions of employment including responses to be taken upon discovery, investigation, and resolution of actionable events.

All forms of applicant/employee communications should clearly state employment policies including language that material falsehood or omission of employee information in any form could result in termination regardless of the discovery timeframe. Employee consent forms should be clear that the employee is giving permission for screening during employment, and as permissible by law consent to future screenings.

It is the employer’s decision to determine the type, frequency, and conditions of the screening policy based upon the legal requirements, industry requirements, and business need. As examples, an employer’s policy could be to require background checks annually, upon employee consideration for expanded job responsibilities, at specified intervals throughout employment, or utilizing continuous monitoring of public records for potential issues.

An important component in the policy is what actions will be taken by the employer if potential risks are discovered, or if actionable events have been recorded. There should be written procedures to follow if derogatory information about an employee is discovered or a record of a criminal offense is found. Identification of a risk should not mean an automatic termination of an employee without further review and/or legal consultation. An action or a security review and investigation should be based upon business justification taking into account the connection between the negative information and the nature of the work being performed. The nature of the offense, the gravity of the offense, the employee’s job responsibilities, the time period in which the offense occurred, and all relevant information should be considered in an individual assessment of the situation.

There can be positive results from implementing post-hire risk monitoring policy and practices. A post-hire risk monitoring policy and practice:

• Creates documentation of the employer’s due diligence efforts throughout employee tenure. Written documentation may help defend against claims of negligence or other legal actions. A pre-employment screening is only an initial due diligence, a one-time snapshot of the applicant’s qualifications for employment as of the report date. The screening by its nature cannot predict the applicant’s future behaviors. Applicant data may be changing even as a report is being prepared. An employer cannot rely on the accuracy and usefulness of the screened data for the long-term. Post-hire risk monitoring is the next step forward in due diligence.
• Employers can’t assess or prepare for risks of which they are unaware. The initial screening is the good faith effort of the employer to protect his business. However, as noted above, a pre-employment screening is only as good as the data that has been reported and the screening company has access to. If derogatory information has yet to be filed, or has been misfiled, the employer‘s hiring decision is compromised.
• Risk mitigation requires continued effort to identify and address potential threats. With continuous screening data is refreshed as conditions change. The employer’s ability to identify current risks can provide more timely and appropriate responses to issues.
• Continuous screenings can discover information that was overlooked at the initial screening, erroneous information, or information awaiting process through the court system at the time of the initial report. With subsequent review the employer may find that the now current employee does pose an insider threat that should be investigated.
• Post-hire screenings can identify expired licensure, certifications, permissions, or coverages. This could be particularly important in certain types of industries such as healthcare, finance, transportation, and law. An expired license or certification can hold the employer responsible for liability issues if the employer allows the individual to work without the proper licensing and/or certifications.
• Post-hire screening helps to protect the organization’s clients, customers, and vendors. Through risk reduction efforts within the company, the interests of third party interests are protected in their interactions with company employees.

There can be negative repercussions if post-hire monitoring is not thoroughly researched, developed, and implemented. Inadequate or incomplete attention to detail can bring about:

• Employee backlash and discontent. If employees receive the wrong or mixed message about a continuous screening policy, the employee morale and possibly their productivity can be negatively affected. Long time employees may become stressed thinking they are under constant scrutiny and could be subject to dismissal at any time. Applicants may withdraw from consideration for employment if a screening policy appears arbitrary or without business need.
• Improper, inadequate, or faulty implementation of a screening policy can have serious legal consequences. A wrongful termination suit may be the least of the employer’s problems if his policy has not been legally vetted, properly implemented, and adequately supervised.

Post-hire risk monitoring may or may not be appropriate for all businesses. It will depend upon the nature of the business, the type of industry, the size of the organization, the makeup of the workforce, and assessment of risks. The question employers must ask: “Is it worth it?” That answer determines the next step in fulfilling their duty of care to ensure the safety and security of their workforce and by extension the clients and customers that are served. Background screening conducted at the pre-employment level is an information gathering tool to protect the organization. By conducting post-hire background screening, the organization gains a real time risk mitigation tool.

The landlord must provide the notice if the adverse action in any way is based on a consumer report that was a factor in the landlord’s housing decision. Even if the information in the consumer report was only a minor part in the overall decision, such as cursory review of the applicant’s credit history, the applicant must be notified that an adverse action was taken.

The Notice of Denial Based on Credit Report or Other Information sent to the applicant advises them of rights under the Fair Credit Reporting Act and Fair and Accurate Credit Transactions (FACT) Act of 2003, (15 U.S.C. §§ 1681 and following. The notice must include:

• the name, address and telephone number of the credit reporting agency that supplied the consumer report including a toll-free telephone number for credit reporting agencies that maintain files nationwide,
• a statement that the credit reporting agency that supplied the report did not make the decision to take the adverse action and cannot give the specific reasons for it, and
• a notice of the individual’s right to dispute the accuracy or completeness of any information the credit reporting agency furnished, and the consumer’s right to a free report from that agency upon request within 60 days.

The Dodd-Frank Act amended the FCRA to include additional disclosure requirements when adverse action is taken because of the consumer’s credit score. Specifically, the FCRA requires a person to make the following disclosures in writing or electronically as part of the adverse action notice:

• the consumer’s numerical credit score used by the person in taking adverse action;
• the range of possible credit scores;
• the key factors that adversely affected the credit score;
• the date on which the credit score was created; and
• the name of the person or entity providing the credit score or the information upon which score was created.

If the credit score did not play a role in the decision to take adverse action, these disclosures are not required.

The above discussion covers FCRA requirements as of this writing. Landlords should conduct their own due diligence regarding the use of consumer reports, adverse action notices, and current FCRA requirements. Additionally, there may be state statutes that have different or additional requirements or prohibitions regarding the use of consumer reports for applicant/tenant screenings and notification requirements for adverse action. Landlords are required to comply with all applicable laws regarding consumer report issues.

An adverse action is any action by a landlord that is unfavorable to the interests of a rental applicant. It includes not only a landlord’s denial of a rental application but also an action by the landlord that imposes a burden not required of all tenants. Common adverse actions by landlords include:

• denying a rental application,
• requiring a co-signer or guarantor on the lease,
• requiring a deposit that would not be required for another applicant,
• requiring a higher security deposit that would not be required for another applicant, and
• requiring an increased rent amount that would not be required for another applicant.

As examples, landlords must send an adverse action letter to applicants who are denied a lease if any of the following describes the decision related to denial of tenancy even if other factors also played a part in the decision.

• A tenant screening company is hired by the landlord to provide a report that includes negative information about the applicant leading to denial of tenancy.
• A consumer screening agency is used that supplies only a credit report and the applicant is rejected on the basis of information in the report.
• The landlord pays someone on a contractual basis (as an independent contractor rather than an employee) to do tenant screening and the contractor’s report leads the landlord to conclude that he shouldn’t accept the applicant.
• The landlord contracts with a property management company to investigate an applicant and the landlord rejects an applicant based on what the management company says.

What if the rental decision is based upon something other than a consumer report? Federal law does not require a landlord to provide the report if the decision is based on information that the landlord or his employees verified on their own. This type of information might be information on the application form, a report from a previous landlord, or a record of an eviction obtained directly from county eviction records.

An adverse action report is generally not required if the basis for the denial of tenancy is based on:

• Information obtained from applicants themselves on the application form or in conversations with them or,
• Oral or written information provided by an applicant’s reference.

Landlords usually needn’t send a formal adverse action letter if the following describes the situation.

• The applicant is not accepted because the applicant does not meet the landlord’s rental standards and the landlord is unwilling to modify his rental terms and conditions such as rent amount, required deposits, or pet policy.
• Information supplied on the rental application indicates that the applicant cannot meet the landlord’s criteria – e.g., insufficient income.
• The landlord learns from a conversation with the applicant that he has to move in by a certain date because he’s being evicted and the eviction is considered to indicate a high risk.
• The landlord or his employee calls the applicant’s past or current landlord, employer, or personal reference who provides information that leads to rejection.
• A self-employed applicant provides tax returns that show an income below the landlord’s qualifying criteria such as income to rent ratio.
• Upon analyzing an employed applicant’s pay stubs the landlord discovers that the applicant was untruthful regarding place of employment or amount of income when filling out the application form.

Landlords use consumer reports in evaluating and selecting tenants for their rental properties. A consumer report contains information about an individual’s credit, character, general reputation, and lifestyle. As a tenant background check, consumer reports can include rental history, eviction history, credit history, or criminal records.

Consumer reports are usually prepared by a credit bureau or other credit reporting agency (CRA) and are covered under requirements of the Fair Credit Reporting Act (FCRA).

When a landlord uses a consumer reports to make tenant decisions, the landlord must comply with the FCRA requirements.

Examples of consumer reports include:

• credit reports from a credit bureau, such as TransUnion, Experian, and Equifax or an affiliate company,
• reports from a tenant screening service that describe the applicant’s rental history based on reports from previous landlords or housing court records,
• reports from a tenant screening service that describe the applicant’s rental history and also include a credit report the service got from a credit bureau,
• reports from a tenant screening service that is limited to a credit report the service got from a credit bureau, and
• reports from a reference checking service that contains previous landlords or other parties listed on the rental application on behalf of the rental property owner.

If an applicant does not meet the landlord’s rental standards (screening criteria), a landlord can reject the application or may accept the application with conditions.

A landlord’s decision to deny tenancy or approve the applicant with different terms and conditions requires the landlord to notify the applicant using an Adverse Action Notice. Consumer reports may contain misleading, incomplete, or inaccurate information, such as information relating to eviction or other court records. An adverse action notice explains to the applicant his rights to see information being reported about him and an opportunity to correct inaccurate information.

Good property management is active property management with a hands-on involvement in all phases of the rental operations for people, property, and policies. Active management can be the owner’s self-management of his property or as out-sourced services from a property management company.

Self-Management

At the most basic level of business ownership an owner must ask himself if he really wants to manage his own properties. Active property management is a demanding business. An owner should assess his willingness to handle multiple priorities and potentially stressful situations in a 24/7/365 environment. Appropriate and timely response to emergencies and other call-outs is critical for protection of tenants and property.

Time management is a high priority in active property management. An owner should consider the expense of time involved in daily operations and on-call readiness. Consideration should be given to the value of time and best use of time before an owner commits to acting as his own property manager. Property location, type, size, as well as the number of properties can easily increase a workload despite an owner’s real estate management experience or handyman capabilities. The number of hours in a day does not increase when more properties are added to the investment portfolio. Even with the best of properties, an increased workload or unexpected events involving tenants or properties can quickly drain owner resources.

While some owners prefer to invest in single-family housing to transfer some of the routine maintenance tasks to the tenant, the owner retains the responsibility and liability to keep the property in good and habitable condition. With multi-family housing and multi-unit properties, there is a corresponding increased workload to inspect, maintain, and repair buildings and keep the grounds in a satisfactory manner for compliance with various habitability, health and safety, and building code standards.

Before accepting the management challenge, an owner should conduct an honest self-evaluation of his skill sets, tolerance for risk, the value of his time, and the availability of resources to protect and maintain his business. If an owner does not have the time, willingness, energy, and abilities to be a full-time hands-on landlord, he may want to consider his options in utilizing a property management company.

There can be circumstances where the utilization of a property management company is the better business practice. As an example, the physical location of a rental property may be distant from the owner’s residence, making it difficult to devote adequate attention to property inspections, maintenance, repairs, rent collection, and other normal course of business activities. Utilizing a property management company in the local area of the rental property may be appropriate in this situation.

Property Management Companies

Property management companies can offer a variety of services depending upon the scope of engagement – i.e., full service management or an a la carte menu of management services.

An owner can choose the type of service that fits his business needs, as example, utilizing the management company for marketing and tenant screening services while retaining hands-on management for other property operations.

For several reasons, an owner should take special care before engaging the services of a property management company. The use of a property management company does not eliminate owner liabilities related to business ownership and operation. The property management company, as selected, becomes the owner’s legal agent who essentially controls the rental investment through their representation with tenants and governmental agencies, enforcement of rental policies, and handling of rents and deposits. The owner is liable for all acts performed by the owner’s agent in exercise of the authority given the agent by the owner.

Accordingly, an owner must have a good understanding of the many duties in property management and conduct all due diligence necessary to ensure the property management company is capable to manage the rental properties in a manner that legally compliant and in accordance with the owner’s rental policies. In his due diligence an owner should determine from the management company the:

• Authority, duties, and responsibilities of the management company;
• Duties and responsibilities of the property owner;
• Handling of tenant and owner funds;
• Handling of expense issues, including authorization for large non-routine expenditures;
• Types of reports provided to the owner;
• Schedule of disbursements;
• Insurance issues;
• Management compensation;
• Maintenance duties; and
• Renewal and termination of the management contract.

Property Management Duties

There are core property management duties that must be addressed through compliances, policies, and practices regardless of the form of management.

• Legal requirements – up-to-date knowledge of applicable federal, state, and local laws including landlord-tenant statutes and fair housing laws; compliant rental forms, policies, and practices.
• Market research – analysis of local rental market data, trends, and rents; comparison of property features, rents, and amenities to market competition; setting an optimal rent range for the property.
• Marketing – marketing the property in local rental markets to increase exposure and branding opportunities and tracking advertising results to determine the most effective methods to attract applicant pools.
• Filling vacancies – maintaining rent ready condition of vacant units; prompt response to prospective applicants’ inquiries; open house showings, accepting rent applications; collection of application deposits; screening of applicants including background checks on applicant credit history, rental history, public records, and criminal conviction history as allowed by state statutes; verifications of applicant identity, income, and employment status; analysis and evaluation of screened applicants; recommendation for tenancy; required legal disclosures to an applicant before the move-in date.
• Tenant move-in – new tenant orientation session; collection of security deposit and other fees; lease signing, unit inspection and move-in checklist, delivery of keys.
• Tenant move-out – unit inspection and move-out checklist documenting condition of unit, security deposit accounting and return, return of keys from tenant.
• Tenant customer service – prompt response to tenant inquiries, requests, complaints, problems and maintenance issues.
• Rents – rent roll, collection of rents, assessment of late fees, pay or quit notices as required.
• Property inspections – annual property inspection; periodic health and safety issues inspections for lease/ code violations or repairs.
• Repair and Maintenance – routine and preventative maintenance for units; maintenance of property buildings, grounds, and common areas.
• Evictions – tenant notification to cure or quit, filing of unlawful detainer action; follow through with court procedures for tenant removal from unit and return of possession of rental unit to owner.
• Business Reports – management and financial reports for business analysis and planning; accounting and bookkeeping reports; management reports for vacancy rates; cash flow statements with itemized income and expense data; tax reporting documents; tenant files; property files, and ownership records.

The decision to self-manage, out-source full management, or selectively engage property management services is a business decision based on data from multiple sources. Data for analysis could include costs of out-sourcing, owner time, property details, resources, owner experience, or owner preference. A cost-benefit analysis of each management option may be beneficial to determine the most cost-effective yet profitable method of rental property management.

Beginning with the pre-screening of an interested prospect, there are a few must-ask questions that can help determine the prospect’s ability to qualify for tenancy. The responses to the questions should be carefully evaluated for potential red flag issues.

Some commonly asked questions are:

“When do you plan to move?”

Typically a landlord’s lease agreement requires a minimum of 30 days’ notice of tenant move-out. A response that the prospect wants to move in immediately or within a period less than 30 days could signal a problem for any number of reasons. Moving on short notice could be as a result of employment relocation or family matters but could also be a result of poor planning by the tenant. Red flags suggest pending eviction, past due rents or other lease violations requiring cure or quit notices. A response that the prospect is considering a timeframe greater than 90 days or is vague in nature may indicate the person is just looking and may not be serious about an actual move in the near future.

“Why are you moving?”

A landlord can learn a lot from the prospect’s response to this question. Typical responses are to get more/less space, be closer to work or school, live in a better neighborhood, a job relocation, family responsibilities, more affordable housing, traffic or noise issues. Red flags are evasive answers or vague reasons that suggest eviction, past due rents, lease violations, trouble with neighbors, problems with the landlord, or domestic problems. One or more of these issues could be reasons that the prospect must move. If the prospect has a long list of complaints about his current landlord and neighbors, his response is a definite red flag to future landlords.

“How many people will be living in the rental property?”

Landlords set occupancy limits based on regulations and codes set by local building, structural, health, and safety standards as well as limitations set by size and mechanical/system/utility constraints. A maximum number of occupants for square footage space may be specified by local ordinances. Red flags would be the number of potential occupants that exceeds recommended standards or an uncertainty of the number of occupants. Each adult occupant should be required to sign a lease agreement. An applicant who refuses to complete an application form, agree to screening or, sign the lease agreement may have previous problems rental history problems and/or indicate something else to hide.

“Will you have any problems completing the standard application process?

The landlord should explain to interested prospects the application and screening process that includes personal interviews, written application, background screenings, and landlord conducted verifications for identity, employment, income-to-rent ratios, rental housing history, and references.

“Our monthly gross income rental standard is three times the monthly rent. The monthly rent for this unit is XXX. Will you be able to meet this standard?”

While the vacancy listing should state the monthly rent amount for the unit, potential tenants may forget such details when they respond to an ad. By reminding them of the rental policy for income qualification, and the monthly rent amount, a landlord can obtain information that allows the potential tenant to self-qualify himself for consideration. Current rental market studies show that in some areas the rent amount can be as much as half the applicant/tenant’s monthly income. While a potential tenant may have the funds to move in, there could be issues during the tenancy regarding full and timely payments of rents.

“Can you provide employment references and proof of income?”

A landlord must determine to the best of his ability that the prospect can prove a steady source of income and sufficient income to pay his rent. Most income sources are wages paid by an employer. Red flags are admissions that the prospect is currently out of work but expects to have a job soon, or that the prospect has held a number of jobs in relatively short time or appears to change jobs or types of jobs frequently. If the prospect works for cash, there could be a number of issues that should be explored.

“Can you provide previous landlord references?”

A landlord should require an applicant to provide rental housing history previous to his current landlord. The history including former landlord contact information could be requested for a certain time period, such as the last 3 to 5 years. Reference checking with previous landlords is an important part of tenant screening. The landlord will want to find out how the former tenant paid his rent and generally performed according to the lease agreement. Did the tenant give proper notice for move out? Was the security deposit returned in full or was there damage to the rental unit?

If a prospect cannot supply satisfactory previous landlord references, it can signal problems. If a prospect asks that his current landlord not be contacted, it could be a red flag for lease violations, past due rents, pending evictions, etc. A landlord wants his new tenant to be a good neighbor and respect the rental property. If the prospect’s behavior indicates he cannot follow the landlord’s rules or that he may be a threat to people and property, a landlord should decline to continue the application process. It is usually a good idea to verify ownership of the building or name of a legitimate management company rather accept the word of a person answering phone number provided by the applicant. False references are grounds for rejecting the applicant.

“This is a smoke-free property. Is that a problem?” Or “We have a no-pets policy. Is that a problem?”

A lease agreement is a legal contract with obligations and duties set out by law and the landlord’s business policies. Landlord policies, the rent rules, are a condition of tenancy. It is the landlord’s duty to enforce his policies. In the sample questions above, if the landlord discovers that the tenant is keeping a pet even temporarily as a favor for a friend or that secondhand smoke from the tenant’s unit is drifting into the neighboring unit causing the neighbor to complain, the landlord should enforce his policies by issuing a notice to the tenant to cure the lease violation or quit the tenancy.

“How long do you plan to rent?”

Most landlords are looking for a stable, long-term tenancy, typically a one-year lease agreement to start with. A response that indicates that the prospect will give notice as soon as he buys a house is not favorable to the landlord’s interests. Many landlords do offer month-to-month rentals, shorter-term lease agreements, or are willing to structure a lease to coincide with a school term. A red flag response such as “it depends” would indicate a prospect isn’t committed to a firm decision for moving or he has other issues the prospect is unwilling to share with the landlord. If a prospect indicates he moves around a lot, the frequency of moves and the how long each tenancy lasted are issues that require further discussion.

QUESTION:

What should I do if something seems off?

ANSWER:

There could be any number of possible negative findings as screenings are conducted. A landlord may require further investigation of issues and discussions with the applicant before making a rental decision to proceed or decline with the application process. There can be no selectivity or preferential treatment of one applicant over another.

An expressed reluctance by the applicant to disclose personally identifying information particularly a Social Security number is not an uncommon issue. The potential threat of identity theft is a concern that can be addressed by an explanation of the landlord’s business necessity to adequately screen applicants and protect the existing residents and his policies and procedures to protect all tenants’ privacy and security rights.

However if the applicant fails to properly complete the application form, such as leaving blank spaces or if information is later found to be false or misleading, a landlord should take appropriate action for further discussion and evaluation before making a final determination.

Typically a landlord will conduct tenant screenings for information about an applicant’s employment, income, credit history, financial obligations, rental housing history, criminal background history or other consumer reports as allowed by applicable laws, and personally identifying information such as name, address, Social Security number, and driver’s license information.

Conducting an applicant interview can provide additional information, and/or clarification and confirmation of information shown on the application form and the tenant screening reports. Information obtained during an interview should be consistent with screening information. If the applicant’s answers do not match up with information on screening reports and the completed application form, it could be a red flag that indicates a problem or serious risk.

Red flags can pop up any time during the interview/application/screening process. Experienced landlords can usually recognize certain patterns of behaviors or types of evasive answers by prospects and applicants which could be warning signs of a problematic tenancy. Red flag responses could be hesitation on the prospect’s part to agree to customary tenant screenings or failure to fully comply with landlord requirements or requests for information.

A landlord should be prepared to handle inquiries from the prospect/applicant who wants the landlord to make a deal that deviates from standard business practices. This could be a red flag for potential issues with late or missed rents, insufficient security deposits, occupancy numbers, or other tenancy related issues. By holding to his stated business policies and practices a landlord can help to reduce claims of discrimination and help avoid potential risks.

All prospects/applicants/tenants must be treated in the same non-discriminatory manner. An indication of a potential red flag issue cannot be selectively investigated or selectively ignored.

There are many different approaches to advertising rental properties. Many landlords have found through experience that there is no one best advertising approach that helps to fill a vacancy. What works is usually conditioned upon a number of factors. Market supply and demand in the local rental area and the area demographics may influence the type of advertising media and the media platform. Property location, property characteristics, and rental policies may be a factor in how long it takes to fill the vacancy regardless of the advertising method. Budgetary considerations and the urgency to fill a vacancy may also influence what advertising method is used. Word of mouth advertising, social media and online marketing sites (e.g., Craigslist, Zillow) are some of the most commonly used advertising methods.

Advertising Approaches

A broad advertising approach blankets the potential market with information made available to large numbers of people to allow them to determine their interest and initiate contact. Traditional newspaper classified ads and online vacancy postings are examples of broad advertising approaches.

For some local markets a more defined advertising approach may be appropriate for the property and rental area. Word of mouth advertising and placing “For Rent” signs on the property are examples of a narrow, defined approach to advertising. It may take longer to fill a vacancy when using narrowly defined advertising methods.

Studies have shown that word of mouth advertising from existing tenants can be quite effective particularly in small regional markets. Word-of-mouth advertising can also come from referrals from family, co-workers, and friends.

While most advertising will eventually attract attention from potential renters, effective use of advertising can reduce vacancy down time and associated costs. Realistically, a combination of advertising methods is usually required to provide an adequate number of rental prospects for application and qualification.

While researching the local market area and developing advertising copy, a landlord may be able to use market information to compare the features of his rental property to other rental properties in his local area. Research of market demographic data may help identify market trends or desirable consumer lifestyle amenities which could be used in planning future services or property upgrades and improvements. Using demographic data to target a preferred segment of rental population is discriminatory and illegal under fair housing laws.

Some landlords may think that because the rental market is often described in generational segments such as Millennials, or Gen X, or other type of descriptive label, advertising of a rental property must be specifically directed to appeal to a particular segment within the rental market.  Advertising and marketing of a rental property including the filling of a vacancy must always be conducted in a non-discriminatory manner according to standard rental policies and procedures and applicable laws. A vacancy is a vacancy and should be filled with a qualified applicant. The first applicant qualified under a landlord’s rental standards is the next tenant.

Fair Housing and Advertising

In advertising vacancies a landlord must make sure his advertising complies with fair housing requirements at all levels of governance. At the federal level, Title VIII of the Civil Rights Act of 1968 (Fair Housing Act), as amended in 1988, prohibits discrimination in the sale, rental, and financing of dwellings, and in other housing-related transactions, based on race, color, national origin, religion, sex, familial status, and handicap.

Section 804(c) of the Fair Housing Act specifically makes it unlawful to make, print, or publish, (or cause to be made, printed, or published), any notice, statement, or advertisement, with respect to the sale or rental of a dwelling, that indicates any preference, limitation, or discrimination based on race, color, national origin, religion, sex, familial status, or handicap. This prohibition against discriminatory advertising applies to single-family and owner-occupied housing that is otherwise exempt from the Fair Housing Act.

The principal purpose of fair housing advertising is to advertise in an inclusive way that will attract the broadest possible customer base, and to avoid expressing any preference for or against certain people. Advertising should be reviewed to make sure it is in compliance with fair housing requirements. The important questions to ask when reviewing your advertising are:

• What message is being sent?
• Does the advertisement communicate preferences for or against particular people?
• Does the advertisement describe the housing and not the people?

In determining whether advertising constitutes a discriminatory housing practice, courts have generally applied a “reasonable person” standard. What this means is that liability is incurred by a person or entity if they make an advertisement that indicates a preference and that preference is readily apparent to an ordinary reader.

Truth in Advertising

Advertising should be honest and truthful in statements of rental terms, conditions, and policies and descriptions of property features and amenities. When advertising a rental vacancy, the ad should clearly state in a non-discriminatory manner the basic rent details that a person would need to know in order to determine an interest in the property. Basic details commonly include property location, size (e.g., number of bedrooms, baths), rent amount, deposit/fees, availability date, lease term, and important policies (e.g., pets allowed, credit check required). Bait and switch advertising is illegal under consumer fraud laws.

Landlords should take care not to exaggerate when describing features of their rental property in communications with prospective tenants. The choice of words (oral or written) and the manner in which the words are spoken or communicated in writing can potentially cause problems for the landlord. A landlord can increase his liabilities and responsibilities by his actions and his promises.

As a business practice, a landlord must mean what he says and commit to keeping to his word. In advertising his property/vacancy, a landlord must not falsely portray what is actually provided. If the landlord does not actually provide what was promised and fails to maintain in good working order what was originally provided, the landlord may find that his failures create a liability for any criminal acts that those measures would have prevented. The landlord’s actions could be held to be a material factor in the cause or contribution of a crime. If the landlord had not promised such measures in the first place, he might have not created the liability for himself.

A landlord must keep the promises made in his landlord-tenant lease agreement. The lease agreement is the contract between landlord and tenant detailing the rights and responsibilities of each party. In his written lease agreement and supplemental documents the landlord makes specific provisions and promises. A landlord may also make them by his oral statements. Promises can be either made explicitly or implied. As an example, if the landlord in his lease agreement asserts that security measures such as protective door locks and security patrols are provided, the landlord must deliver such services. The tenant signing the lease agreement has every right to expect and depend upon those assertions. If the landlord’s policy regarding lost keys or lock-outs has specific procedures for the tenant to follow and the tenant in good faith follows those procedures but the landlord does not perform, should the tenant suffer harm, the landlord has created liability by his own negligent acts.

If the landlord states, promises, or implies by his words or actions that a future amenity will become available, the applicant/tenant has cause to believe that he can rely upon that statement, promise or action for his future planning and decision making. Again, advertising and action create contingent liability.

The landlord may take the opposite approach in creating his lease agreement and/or supplemental documents by including lease clauses that try to absolve the landlord of any and all responsibility for tenant safety, in effect stating that the tenant is on his own. This attempt to escape liability for criminal acts or for negligent actions does not eliminate the landlord’s liability. While it can reduce the effect of such liability, there are provisions under law that must be satisfied. Failure to follow state and local requirements for the health and safety of tenants activates the landlord’s liability.

Not all tenant amenities are advertised or brought to a prospective tenant’s attention during an initial visit. Not all amenities are mentioned in the written lease agreement or supplemental documents. When landlords provide certain amenities the landlord’s actions in providing such amenities have the effect of obligating the landlord just as if there were oral or written agreements for such. Even though the landlord did not mention these amenities, the landlord has incurred the responsibility to retain the amenities and keep them in good working order.

Document Retention

All advertising copy and information regarding responses should be kept for the period of time that complies with applicable document retention policies regarding the subject matter. By documenting your advertising efforts you can determine what advertising method(s) may be most effective for your property under various market conditions. Additionally, documentation can help provide a defense against claims of discriminatory advertising policies.

Tenant selection may be a landlord’s most important business decision, one that can have significant impact upon his entire rental operations. By taking a controlled, systematic approach to tenant screening and selection, a landlord will minimize the risk of a bad tenant. A bad tenant can mean lost rental income, property damage, and court actions.

Tenant screenings are risk assessment practices to identify and evaluate known or reasonably foreseen risks as presented by a rental applicant. Tenant screening is a landlord’s due diligence to protect his business and property, and his duty of care to tenants and their property.

Filling a vacancy as soon as possible is high priority in property management. However, higher priority should be given to filling a vacancy with a qualified good tenant. That is the real goal – to attract and retain tenants who qualify to rental standards.

Setting rental standards and conducting appropriate screening assessments becomes a core business function.

Rental Standards

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, verifiable current employment, positive references from previous landlords, personal references, satisfactory credit report and debt payment history, no history of illegal drugs or illegal activities, no derogatory public records, and satisfactory background checks.

A landlord must set his rental standards to meet his business requirements. Generally a good tenant is described as a tenant who demonstrates the ability and willingness to pay market rent, take good care of the rental property, and respect his neighbors, both tenant and non-tenant. These three demonstrated behaviors are the base line standard most landlords consider in tenant screening and selection. Additionally a landlord may screen for the likelihood of stable income/employment for the near future; no history of property damage; no reported lease violations; and no recorded evictions.

Setting high standards can in theory help minimize risk. 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 of the rental business – as examples, the ability to pay the advertised rent, acceptable credit history, and satisfactory previous landlord references.

Screenings

Most landlords would agree that some measure of tenant screening is necessary to protect their business investment. Any screening, legally compliant and supported by valid business reasons, is beneficial in protecting the interests of people and property. What types of tenant screenings and type of delivery method is an independent business decision typically based upon management experience and business need. The important key in tenant screening is consistency in methodology, criteria, analysis of data, evaluation, and selection regarding any and all rental applicants.

All screenings must be compliant with applicable federal, state, and local laws for anti-discrimination protections, consumer protections, and use of consumer reports. State landlord-tenant statutes may also regulate or restrict certain types of screenings. Landlords are held responsible to comply with applicable laws and ordinances.

Tenant pre-screening begins when the vacancy is advertised to the public. The media copy usually provides basic property facts such as the property address or neighborhood, number of bedrooms and bathrooms, rent amount, deposits, availability date, and/or pet policy. Those individuals viewing the vacancy listing may use this advertised property information to screen themselves as to their interest, budget needs, and suitability of the rental unit for their family.

A prime consideration in advertising vacancies is to make sure the advertising is compliant with fair housing advertising. The Fair Housing Act makes it unlawful to make, print, or publish any notice or statement that indicates any preference, limitation, or discrimination based on the federal protected classes of race, color, national origin, religion, sex, familial status, or handicap. The listing should use descriptive statements of property facts to avoid claims of discriminatory advertising.

In addition to federal fair housing laws, there may be state and/or local fair housing laws which offer greater protections through additional protected classes or characteristics. A landlord is required to comply with fair housing laws at the level that provides the greatest anti-discrimination protections to applicants.

The pre-screening process continues as potential prospects make initial contact with the landlord to inquire about the vacancy. For those individuals that express interest, a personal interview or open house showing may be the next step in the tenant screening process.

The screening process should be tailored to fit the business needs. What type of information is screened (e.g., identity, credit, criminal conviction, public records) is a business decision. How a landlord screens is determined by business preferences and the resources he has to conduct in-house screenings or to request reports from third party screening providers.  Who is screened is non-negotiable because a landlord must screen all applicants using the same criteria in the same manner. Failure to do so is discrimination.

Periodic review of standards and evaluation of screening methodologies should be conducted for compliance with regulatory requirements. It may be beneficial to also periodically research latest technologies for more efficient or effective modes of screening offered by service providers.

Conventional screening follows completion of basic qualification activities; i.e., identity verification, prospective applicant interview and satisfactory answers to minimum stated rental requirements, and preliminary review of the completed, signed and dated application form.

All applicants should sign the consent to release information form that authorizes the landlord to verify credit, employment and any other information, including that contained on the application, from a credit bureau, from the creditors directly, from employers, financial institutions, and prior landlords, and from providers of eviction and criminal records. Included in the release form should be a statement that the applicant’s permission includes obtaining updated reports, survives the expiration of tenancy, and can be used for any legal purpose associated with the tenancy.

Many landlords focus attention on credit reports as their primary tenant screening tool. However additional screenings are recommended to provide a big picture view of applicant behaviors other than just financial management.

Some landlords express the opinion that the more information the better when screening applicants. However, it is not the collection of information that assures a good tenant. It is the understanding of the business and operational requirements and requesting the type of information that, when adequately analyzed, provides the data for an informed decision.

While each screening is a separate independent informational report, it is the objective evaluation of the totality of informational reports that provides a broader view of applicant behaviors over time. It is the applicant’s willingness, ability, and demonstrated commitment to meeting obligations that will work in his favor to advance as a qualified candidate for tenancy.

The selection of a qualified applicant is the final step in the application/screening/evaluation process. With adequate due diligence a landlord should be prepared to offer tenancy to a well-qualified and motivated applicant.

In reality there is no perfect tenant, no foolproof screening process, and no way to accurately predict an individual’s future behavior. However past behavior patterns are recognized as an indication of future behavior patterns. By analyzing the applicant’s reported historical data for credit management, rental housing, and public records a pattern of behavior may emerge that could qualify the applicant for acceptance or denial as a tenant.

Having a good system in place is not a guarantee of choosing a good tenant; however, it does maximize the chances. With a plan in place a landlord is not likely to forget an important screening assessment, rush to judgment, or become emotionally involved with the prospective tenant’s situation.

The goal in utilizing tenant screening is to make a good business decision, one that protects the rental investment and does not incur liabilities or violate the law.

There are basically two different ways to approach transfer of a lease. One is by subleasing, the other by assignment. Each method has advantages and disadvantages.

For a sublease in some states, a landlord may technically have no direct legal relationship with a subtenant and so cannot legally act directly against a subtenant. Theoretically, the landlord must act against the primary tenant who must in turn act against his tenant, the subtenant. However, this issue may depend on the laws of a particular state. In general, however, the primary tenant remains liable on all terms of the lease unless otherwise explicitly released from some or all of them.

If, instead of a sublease, the lease is assigned, then the landlord can act directly against the new tenant assignee because he is the tenant of the landlord rather than of the original tenant. Furthermore, the original tenant can potentially be forced to remain liable on some or all terms of the lease in addition to the assignee. The assignment can even allow the landlord to proceed against the original tenant without proceeding first against the assignee. This can be an important clause because, although the landlord would usually attempt to proceed against both assignor and assignee simultaneously, it allows the landlord to immediately proceed against the original tenant in the event that the assignee cannot be served in any legal action, avoiding any restriction on that action that might be provided by the laws of a specific state or that a judge might mistakenly think exists.

As a summary of key points:

If the landlord permits a sublease:

• Original tenant remains liable to the landlord for the rent.
• Subtenant is liable to the original tenant for rent.
• Original tenant is liable to landlord for rent and for damage caused by the subtenant.
• Lawsuits by either landlord or subtenant against the other for money damages are not allowed.
• Eviction often requires evicting the original tenant who evicts the subtenant.

If the landlord permits an assignment:

• Unless agreed to the contrary, assignee is liable to landlord for rent; assignor is responsible for rent if assignee does not pay.
• Unless agreed to the contrary, assignor is not liable for damages caused by assignee.
• Except as agreed, assignee and landlord are bound by all original lease terms.
• Landlord may sue to evict assignee for any violation of lease terms that would have applied to the original tenant.
• An assignee can sue or be sued by the landlord.