Renting to tenants is risky, so it’s understandable that you want to choose the best applicants when filling a vacancy. Tenants can cause property damage, hurt your reputation, or even potentially sue you for damages, which is why it’s important to screen your applicants before extending an offer.
However, some landlords can get a little overzealous about finding the right tenant. Although it’s legal to deny rental applications, you’re can’t deny applicants simply because they don’t fit your exact criteria for an ideal tenant. For this reason, it’s important to understand the legal reasons you can deny an applicant without the risk of legal ramifications. Please note the information presented here is for informational purposes only and is not intended as legal advice.
Why Can’t I Deny Any Application For Any Reason I Want?
Whether it’s a matter of bad credit or you don’t like the information that they put on their application, there are many reasons you might want to deny an applicant. However, there are federal, state, and local laws that limit the reasons why an applicant can be denied to prevent discriminatory practices that can block renters from having a fair chance at housing.
Legal Reasons You Can Deny an Applicant
Although the laws can vary depending on the location of your rental property, there are five valid reasons for denying an applicant that apply nationwide; some of these reasons may vary slightly depending on your jurisdiction. It’s also recommended to familiarize yourself with any additional state and local laws to ensure you’re doing everything by the book.
- – Income-to-Rent-Ratio
If the applicant doesn’t make enough money to be able to afford rent, this is a valid reason to deny them. A general rule of thumb is that the applicant should make at least three times the monthly rent to order to rent to them, although this amount might be higher depending on where your property is located.
For example, if the rent is $3,000 per month ($36,000 per year) the applicant would need to make at least $120,000 per year to rent the property. As a landlord or property manager, you are well within your rights to require evidence of the applicant’s income. This a pay stub or direct deposit statement, or you can have a tenant verification conducted, which verifies the applicant’s income and employment status with their employer. If the applicant cannot verify their income or refuses to, you can deny their application at will.
- – Too Many People Would be Living at the Property
This reason can get a bit confusing because the number of tenants allowed to live on a property is determined by local, state, and federal housing departments, rather than the landlord. To find out how many people are allowed to live at your rental properties, check the relevant occupancy laws. A general rule you can follow is two people per habitable room plus one additional person.
- – Bad Credit
As a landlord or property manager, you’re allowed to require a minimum credit score for applicants to be considered for renting your properties. However, this score can’t be changed whenever it suits you or because you’d like to deny a particular applicant. It’s important to stay consistent if you choose to use credit scores as a factor in your decision.
- – Evictions and Unpaid Balances
You can legally deny an applicant that has unpaid balances from former rental properties, as well as those who have been sent to collections. Although eviction laws are in a state of constant change due to COVID-19 and concerns over the lack of accessible housing in many areas, it’s legal to deny an applicant that has a long history of evictions. However, if the applicant had only one eviction that took place a long time ago, it’s worth considering overlooking this as a cause for denial.
Likewise, if the eviction has been within the last year during the pandemic, you may also want to get more information about the reasons the applicant was evicted and weigh whether you feel they are truly a risk. Was it due to circumstances related to the pandemic (and out of their control), like becoming sick or losing their job? Do they have a good rental history otherwise? Do they meet your other criteria for a tenant? If so, it may be worth overlooking.
- Incorrect Information
If you discover the applicant has provided you with false information, it’s legal to deny them until the information has been corrected and they’ve reapplied. Some examples of false information include creating a fake employer or landlord to use as a reference, or misrepresenting how much their salary is. This is where tenant verification can be valuable because it provides you with accurate information directly from previous landlords and the applicant’s current employer. If you find out the applicant lied, you can legally deny them.
Other Reasons You Can Deny an Applicant
Here are a few other reasons you may be able to deny an applicant, depending on your state or local laws:
- For most states, if you have a property that doesn’t allow smoking or pets, you can deny applicants who smoke or have pets – even if they say they won’t smoke or keep pets at the property.
- Some states and cities allow landlords and property managers to deny applicants with specific types of criminal history, generally violent crimes. However, using criminal history can get complicated, so make sure you understand when you can use criminal history to screen applicants, as well as the legal reasons for denial at your property. You’ll also want to carefully consider whether the applicant’s criminal background really has any bearing on their rental reliability.
Invalid Reasons to Deny an Applicant
As previously mentioned, there are also legal reasons you’re not allowed to deny an applicant, specifically Fair Housing Laws under the Fair Housing Act. Fair Housing Laws explicitly forbid rejecting an applicant due to discrimination based on their protected class. This includes denying an applicant based on:
- Sexual orientation
- National origin
- Gender or gender identity
- Marital status
- Familial status
- Participation in the Section 8 Program or other subsidy programs (this can vary based on your state and/or municipality)
- Other types of arbitrary discrimination
How to Deny an Applicant
In addition to understanding why you can deny an applicant, it’s also important to know that there are rules and regulations to follow when actually denying them.
In order to deny an applicant, you must let them know of your decision by sending them an adverse action letter that informs them of the reason why they’re being denied and if they can do anything to be reconsidered. This is done using the following steps:
- Decide whether you want to accept the applicant with conditions (for example, a higher security deposit for renters with pets) or deny the applicant completely.
- Write the adverse action letter. If you’ve never done this or aren’t sure what to include, there are many templates and examples available online. Make sure that you are thorough about your reasons for your decision and provide clear information to prevent confusion.
- Mail the letter to the tenant. If you used a credit report, you’re legally obligated to include information regarding their rights under the Fair Credit Reporting Act (FCRA). If you live in California, you’ll also need to include information regarding their rights under the Investigative Consumer Reporting Agencies Act (ICRAA).
Choosing the Right Tenant
Although it can be tempting to choose a tenant based on arbitrary things, like first impressions or just a general feeling they would be a good fit, it’s best to use objective information to base your decision on. The main factors that you should consider are:
- Credit score
- Landlord and employer references
- Income-to-rent ratio
- Background checks
- Eviction history
All of these give a clearer picture of whether the applicant is likely to be a reliable and trustworthy tenant. Using our screening services is a convenient and hassle-free way to obtain the information you need to choose the right tenant for your property. When making your rental decisions, spend time considering the legal basis for them, and be sure to send out the proper notifications to applicants you’re denying. This will help to negate any risks associated with claims of discrimination or illegal actions.
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