Tenant Screening Policy
Selecting the right tenant is a critical business decision. The landlord’s tenant screening policy and qualification standards form the basis for informed decisioning of tenant selection. A landlord develops his rental criteria to facilitate choosing the right tenant; a tenant able to pay rent on time and maintain the rental property to good condition.
The right screening policy and qualification standards help protect the landlord’s business against bad tenants. Bad tenants can result in loss of rents, property damage, evictions, unexpected turnover, extended vacancies, complaints, nuisance, threats to safety and welfare of others, and consequently, increased operational costs.
To develop compliant tenant screening policy and practices, a landlord must understand what can and cannot be done according to fair housing laws, landlord-tenant statutes, local ordinances, and applicable consumer protection laws.
A key issue for legal compliances is determining the applicable level of governance and the regulations, restrictions, or prohibitions at that level. Some metropolitan areas in certain states tightly govern rental housing screening policies. Due diligence of applicable laws is required to set compliance to the most stringent standard.
Landlord-Tenant Statutes
Landlord-tenant statutes cover rights and responsibilities of landlord and tenant. It is a landlord responsibility to stay current with applicable landlord-tenant laws on state and local levels. Local jurisdictions may have additional regulations governing landlord duties and responsibilities or could have more restrictive laws than required by state statutes.
Fair Housing Laws
The federal fair housing law prohibits discrimination based on the protected classes of race, color, national origin, religion, sex, disability, or familial status in most public, assisted, and private housing, with a few exceptions.
Some states and local jurisdictions may provide greater fair housing protections with additional categories of protected classes. Fair housing compliance must be in accordance with the most stringent requirements.
Disclosures
Tenant screening criteria set minimum requirements that are applied to all applicants equally and consistently. Disclosure of tenant screening criteria is important to provide transparency and openness in the selection process and provide a defense against claims of discrimination.
In some states or municipalities a landlord may be required to disclose to potential tenants in writing his tenant screening process and the tenant qualification criteria. A landlord must research his state statutes and local ordinances to determine his legal compliance requirements for disclosures.
Qualification Criteria
How to set the tenant screening policy and qualification standards begins with listing qualifications that must be met for acceptance of an application.
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, satisfactory credit history and debt payment history, no history of illegal drugs or illegal activities, no derogatory public records such as bankruptcy, liens, or judgments, satisfactory background check, and in some cases personal references or qualified co-signer.
A landlord can select the tenant of choice as long as the selection decision is based on sound business criteria; all applicants have been screened in the same manner under the same criteria; and such criteria is applied consistently without discrimination in full compliance with all applicable federal, state, and local laws.
However there could be instances when business standards must be adjusted to changing market conditions or business model. Business standards can be revised, however, revisions should always be documented with the business necessity for such changes and the date the revision or addition became effective. A landlord must be sure the business criteria upon which the change is based is sound, legal, and is defensible against claims of discrimination.
The rental qualification criteria should point to the important issues of the landlord’s business – as examples, the ability to pay rent, an acceptable credit history, and verification of satisfactory previous landlord references.
Setting high standards can in theory help minimize the landlord’s risk exposure. However qualification standards that are too high can reduce the size of the applicant pool and extend vacancy periods. Rental standards should be objective, measurable, and relevant to an applicant’s performance as a tenant.
If any standard that is set, despite being neutral and non-discriminatory in its intentions, has a disproportionately adverse effect on any member of a protected class a landlord violates fair housing laws through a practice known as disparate impact.
Screenings
Most landlords agree that 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 types of delivery methods are independent business decisions 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.
It is important to develop a standardized compliant tenant screening process consistently applied to every applicant. With deviation from standards, a landlord opens his business to possible liability with claims of discrimination and unfair treatment of applicants. The best practice is fair, equitable, consistent, legal, and non-discriminatory qualification standards.
Pre-Screening
Documented screening policy and qualification standards allow for pre-screening of interested rental prospects inquiring about a vacancy. Pre-screening is a pre-qualifier to determine if there is sufficient interest on the part of the landlord and prospect to continue to the next phase of the application process.
Whether the initial contact is by phone or in person, it must not be used as a means to screen out prospects by asking leading questions or stereotyping prospects by language and speech patterns or by any other characteristic that is forbidden by federal, state, or local fair housing laws. Such practices are illegal.
The pre-screening process can be cost-effective in managing landlord time to fill a vacancy. A pre-screening interview with a rental prospect allows the landlord to communicate rental standards, qualification criteria, and basic property information. The pre-screening contact benefits rental prospects as well. Prospects can process the rental information to preliminarily determine their degree of interest in the offered vacancy and whether they want to proceed with the application process.
During the initial contact with a rental prospect, a landlord can provide information and ask questions that help the landlord understand the prospect’s rental interest, current situation and future housing plans. The prospect’s answers to a few qualifying questions can provide enough information to help the landlord to determine if there is a reasonable chance of qualification for tenancy. Some commonly asked questions are:
- Why are you moving?
- When is your planned move-in date?
- Are you able to meet the monthly income standard?
- Will you submit a rental application and consent to the standard application process including credit and background checks?
- Can you provide employment verification and proof of income?
- Can you provide previous landlord references?
- How many people will occupy the rental unit?
Using a prepared script and a checklist of property features will help ensure all prospects receive the same information in the same manner. Documentation of all contacts between the landlord and prospects should be done to help defend against potential claims of fair housing discrimination. Notation of the prospect’s responses may prove useful to later compare with information in his application form.
Documentation
Documentation is key to defending against charges of discrimination. Not only does documentation of rental policies and practices help refute false claims of discrimination or landlord negligence; it helps to “remind” both parties as the tenancy proceeds of what was said and done. Information may be misunderstood, memories may fail, or there might be misrepresentation of what was said. Without written documentation of policies, practices, forms, interviews, or other public contact, a landlord can create potential liability. Without the appropriate documentation and retention of documents, it will be the landlord’s word against a claimant’s allegation.
Document control is needed to secure associated rental/tenant documentation. There are legal requirements for the storage and security of rental documentation. This includes how it is stored and accessed; retention of documents; and disposal requirements of documents no longer needed.