Choosing a tenant from an assortment of rental applicants can be a slippery slope for property managers and landlords. In fact, the same can be said for selecting a tenant.
Let’s start with the basics.
The law is very clear on reasons an applicant cannot be denied tenancy, spelled out in the Fair Housing Laws which forbid discrimination based on race, color, age, sexual orientation, handicap, national origin, religion, gender/gender identity, familial status, marital status, participation in the Section 8 Program or other subsidy programs (depending on your State and/or Municipality), or other arbitrary discrimination.
However, there are legit reasons a tenant applicant can be denied, which we will outline below.
Selecting tenants for a rental property is risky, as the property owner’s investment stands to take a serious hit if a renter causes problems, destroys property or stops paying rent. However, with today’s powerful tenant screening tools in place, the chances of taking in a rogue tenant are greatly reduced.
Denying a rental applicant is legal when the reasons are valid. The key to weed out the high-risk applicants from the start is to detach personally from the screening process and allow the technology to tell you who you can consider and who cannot be approved.
There are plenty of reasons a property manager or landlord may want to deny a rental applicant, but whether or not you can legally deny an application is the issue.
Below are five valid reasons a rental application can be denied. This list is not exhaustive, and it should be noted that some of the reasons mentioned may vary slightly depending on the specific state and jurisdiction of the rental property.
Applications submitted by people whose income is inadequate to afford the rent price of the vacancy advertised can legally be rejected. Landlords require applicants to earn at least three times the monthly rent price to afford to live in the unit. Landlords in some cities may require an even higher income-to-rent spread to qualify in order to reduce their risk of unpaid rent.
For example, an apartment costing $1,500 per month comes to $18,000 annually. That means an applicant’s salary would need to be at least $54,000 per year to qualify to rent the apartment.
The property manager or landlord is permitted to ask for evidence of the applicant’s income. This proof can be given as a pay stub, letter of employment, or even a direct deposit statement, although you’d be ill-advised to accept proof of salary directly from the tenant. Tenant screening software electronically gathers and validates income, a foolproof method for making sure the applicant’s income is valid. A prospective tenant whose income or comparable funds cannot be verified can legally have their application denied.
Too Many Occupants
It is possible to deny an applicant because too many people would be occupying the property. The decision regarding how many is “too many” is not up to the property owner. It is mandated by the local, state, and federal housing departments.
To verify how many people you can allow at any of your rental properties, check the relevant occupancy laws in your area. A good basic rule to follow is two people per habitable room plus one extra person. For more information on occupancy laws, check out this article from Zillow.
Landlords are legally permitted to set a minimum credit score requirement to rent one of their properties. While this number cannot be changed arbitrarily, it can be used as an indicator of whether or not a renter is a good candidate for your property.
Credit scores are indicators of a person’s financial history, which is why the law permits the use of them as a deciding factor when looking at rental applications. Remember, however, that you must be consistent when using credit score criteria in making decisions regarding tenant applicants.
Evictions & Unpaid Balances
Landlords can deny applications for people with unpaid balances left at former rental properties and for those that have collections agencies looking to collect money from them.
Additionally, it is legal to deny applicants with a long history of evictions. While one eviction a very long time ago should be considered with a grain of salt when making a decision, more recent evictions can be a serious deciding factor.
Finally, if you discover that any information on the renter’s application is unverifiable or false, you are permitted to deny their application until the information is corrected and they have reapplied.
For example, it is possible that a potential renter could create a fake former employer or landlord to use as a reference. If you contact the information provided and discover that the information is false, you have gained a legal reason to deny the application completely.
Likewise, discovering that an applicant falsified their income is another valid reason to turn deny an application. Falsified information can even be used to evict a tenant if the information had played a factor in your choice to rent to the tenant in the first place.
Most states allow property managers and landlords to deny applications for renters who smoke if smoking is not permitted at the property. You can also deny those with pets if your property doesn’t allow pets. Even if the tenant says that they will not smoke or keep pets at the property, the knowledge that they currently smoke or have a pet is sufficient to deny their application.
Second, some states and cities allow you to deny applications from renters with specific types of criminal history. While HUD recommends that you carefully consider whether or not the record in question has any bearing on their rental reliability, you are permitted to use this information as part of your decision-making.
Now that you know more about what reasons allow you to legally deny a rental application, next is how to go about denying the application. Again, there are a number of rules and regulations about how you should go about this.
When denying a tenant application, you must let the prospective tenant know that you will not be selecting their application by sending them an adverse action letter. This letter informs the tenant why they are being denied, and whether or not there is any way that their application can be reconsidered.
First: Decide to Accept With Conditions or Deny
Decide whether you will completely deny the application or if you would prefer to accept the application with some conditions such as a higher security deposit for renters with pets.
Step 2: Write the Letter
Now, you’ll need to compose the actual notice for the tenant applicant. There are many templates available on the internet. Look for a template that applies to your reason for denial or acceptance with conditions:
- Application denial because of background check or credit score
- Application denial for another specific reason
- Application denial based on results from a screening agency
Once you select the appropriate template, fill in all relevant details. Be sure to be as thorough and clear as possible to prevent any possible confusion.
Step 3: Mail the Letter
Mail the letter to the tenant and include a copy of Be sure to include a copy of the consumer’s rights under the Fair Credit Reporting Act, particularly if you used their credit score as part of the screening process. You are legally obligated to provide that information to the applicant.
Choosing Tenants The Right Way
As you can see, it can be quite complicated to choose the right tenant without a clear understanding of your legal rights as they apply to your decision. Most importantly, keep the rules of the Fair Housing Act in mind at all times.
The main factors to look at when choosing tenants are:
- Credit score
- Eviction history
- Background check
- Landlord and employer references
- Income-to-rent ratio
With all of this information, you can gain a clear picture of whether or not an applicant is likely to be a reliable and trustworthy tenant for your property. If the thought of needing to gather all of this information safely is overwhelming, remember that you can use a qualified screening service such as RentPrep to help you complete the screening process smoothly.