For the umpteenth year in a row, the 2022 Fair Housing Trends Report from the National Fair Housing Alliance found that rental transactions generated the largest number of federal fair housing complaints – over 80% of all complaints were related to rentals in one way or another.
This area of practice also generates numerous disciplinary cases to the State Real Estate Commission, which is one of the reasons why recent mandatory education topics have included landlord-tenant practice and broker supervision. Landlord-tenant issues are also the most common topic on the PAR Legal Hotline. Let’s listen in to a lightly fictionalized hotline conversation (all of these questions/answers have come up at some point, though not always in the same call) to see how members sometimes accidentally back themselves into transactional problems they could avoid.
Caller: I’m helping one of my clients rent out a property, but I’ve never done this before and I have a really basic question: Does the landlord have to give a reason why they reject an applicant?
Hotline: The Fair Credit Reporting Act applies when there is an “adverse action” based on something contained in a “consumer report,” like the background checks most landlords use. So if it’s based on a credit report, eviction history, criminal background or something like that, there is very specific information you need to provide. PAR even has a form for that! (Form AD)
Caller: Oh wow – I had no idea about that law. That’s good to know.
ANALYSIS: If your question starts with “I’ve never done this before but I have some basic questions,” then consider referring that first transaction, using a mentor, and/or getting some additional training and education before dipping your toes into that water. Not just because it’s a really good idea, but also because Article 11 of the Code of Ethics says you should have a general level of competency in the area of practice you’re participating in. Plus you should be talking with your broker before you ever get to the hotline since your broker may not want you doing a type of transaction where you have no experience and their E&O coverage may not even cover rental/property management activities.
Caller: But the landlord is not actually making a decision based on a credit check or anything like that. It’s just that they’ve decided they don’t want to rent to this applicant and they want to know how to turn them down without looking like they’re discriminating.
Hotline: That’s an interesting way to phrase the question. Which leads me to ask… are they actually discriminating?
Caller: I mean… um… not really, I don’t think. It’s just that the applicants are X and the landlord says he’s had bad experiences with that type of tenant in the past and he’s just trying to avoid problems.
ANALYSIS: You’re rolling your eyes right now thinking that we’re making this up. But we’re not. This conversation happens at least a couple of times a month on hotline calls. It’s like Mad Libs – just plug in your protected class and alleged problems. Landlord doesn’t want to rent to (just to be clear, these are actual statements that have been made during calls)…
- Indian/South Asians, because they cook “smelly” food
- Latinos, because they disturb people when they leave for landscaping jobs early in the morning
- Families with children, because they might jump from the balcony or drown in the pool
- Tenants with assistance animals, because the animals might be noisy or pee on the carpet.
Hotline: No matter the justification from the landlord, “I don’t want to rent to you because of your membership in a protected class,” is pretty much a textbook fair housing violation. Of course the landlord can enforce general nuisance rules and regulations about things like noise and odors that disturb neighbors and they can charge any tenant for property damage or excessive cleaning after a tenant moves out. But they can’t just ban someone from a property because they belong to a protected class.
Caller: That’s exactly what I told them at first – just set up rules to deal with these tenants or charge a higher security deposit so you can take care of the problems later, right?
Hotline: Not exactly. A landlord can’t have different rules or fees based on a tenant’s protected class; it’s still discrimination if they’re treating the tenant differently. Also, remember that the amounts a landlord can charge and keep for a security deposit are limited to the equivalent of two months’ rent in the first year of the lease and one month’s rent starting in the second year, so if a landlord is currently maxed out there they couldn’t even increase their deposits for all clients.
Caller: Really? When did that happen?
ANALYSIS: Sigh. July 1, 1972, if you must know. See above in re: “if you don’t know the relevant laws then perhaps you should not be doing this sort of transaction.”
Caller: This is all great stuff that I should probably look into, but can you just answer my original question? How can I help this landlord put something in writing that denies this applicant without looking like he is discriminating?
ANALYSIS: Double sigh. Just to be clear, at this point the member’s question is literally, “Can the Legal Hotline tell me how to help a landlord client cover up illegal discrimination?” We obviously cannot provide that advice, nor should the caller be thinking that this is advice they should be providing to their client.
Hotline: Honestly, if the client is asking you to facilitate their discrimination, the only thing you should really be saying at this point is “I can’t help you with that.” After that, have a conversation with your broker/manager before you continue working with this client because they may decide that the risks of an expensive or splashy enforcement action are greater than the financial reward of the transaction.