Metro Apartment Manager (PDF), April 2006

Q: We’re considering prohibiting smoking in our small plex because we think it will improve the quality of tenants we get. Is that legal?

A: Fair housing laws protect people who belong to protected classes. That means you can’t say you rent to them because they are members of a protected class. Of course, all of us belong to protected classes: we all are one sex or another (or… but that’s for another column), one race or another (or more than one), one religion or another (or none).

The law actually says it’s unlawful “to refuse to sell or rent… a dwelling to any person because of race, color,” etc. It’s the word “because” that’s interesting. A federal appeals court, in a case over 30 years ago titled United States v. City of Black Jack, determined that intent was not implied in the law. In other words, if the effect of your action is discriminatory, you have discriminated. It doesn’t matter if your intentions were perfectly honorable or innocent. In a case I read about, a man claimed sex discrimination against his landlord because whenever he requested maintenance, he was told to fill out a form before the request would be acted upon. Yet he observed the maintenance person, when asked by a pretty young female to fix something, rush right in to fix whatever — no maintenance request form. The maintenance man was not intentionally discriminating against the man. But he certainly was treating the two differently because of sex, and that is unlawful.

Of course, every decision and action taken by a landlord has a discriminatory impact. When you say you won’t rent to someone, that person belongs to more than one protected class. So have you discriminated unlawfully? It all depends. Another federal appeals court ruled about twenty years ago, in a case called Betsey v. Turtle Creek Associates, that a defense to discrimination is business necessity. The court said, “when confronted with a showing of discriminatory impact, defendants must prove a business necessity sufficiently compelling to justify the challenged practice.”

The Oregon legislature a couple of years ago put this concept into statute and mandated a three-part test to determine whether the discrimination is unlawful. The three tests are (1) how discriminatory is the action? (2) is a less discriminatory alternative available? and (3) how important is the business purpose? Let’s look at how that works in real life.

Of the people who I decided not to rent to last year, I’m certain not 50% were female; it was probably 48%, or 52%. If it was the latter, then more women than men were denied based on my screening criteria. That’s discriminatory, but it’s not very discriminatory. On the other hand, my rule of allowing no more than two occupants per bedroom affects applicants who have children a lot more than it does those without, so is quite discriminatory. Three of the four 72-hour notices I issued over the last couple of months went to households headed by women. That, too, is quite discriminatory.

Consider whether alternatives are available. For the first two — changing my screening guidelines and occupancy standards — such are easily available. For the third — nonpayment of rent — I suggest not.

So how about business necessity? Each of my screening guidelines focuses on economics or behaviors having a direct impact on paying rent, caring for property, or getting along with neighbors, making them directly pertinent to successfully managing my business. Not all screening guidelines do, which sometimes gets people in trouble. We’ll discuss this further below. My occupancy standards bear on business necessity, since it’s easy to show that more people creates more wear and tear and, at some point, more noise and disturbance for neighbors. And the business necessity of collecting rent is unarguable.

So although my screening criteria negatively impacted women more than men, it didn’t do so by much, and was supported by objective criteria. Although my screening criteria negatively impacted families with children, I have strong business reasons for doing so and no easy alternatives. My insistence on collecting rent also negatively affected women, but is also supported by economic necessity.

So whenever you adopt screening rules, you need to consider those three factors. Let’s look at smoking. Saying no smoking will have a discriminatory impact. A quick Google search shows a study that says over a third of American Indians smoke while only 11% of Asian Americans do (22% of whites smoke). There are gender differences as well. So smoking will have a disproportionate impact on members of some protected classes. And yet, the differences aren’t as profound as some other screening tools.

Also, there’s a strong business necessity argument, since cleaning up after smokers is definitely more costly. It results in a more expensive repaint job, replacing carpets more frequently, and more. So, yes, if you want to adopt a “no smoking” rule, that should be legal.

There are other tools you can use if you want to change the nature of whom you rent to. You could, for instance, use a higher rent-to-income multiple. While requiring income of at least three times rent is typical in the industry, you could use four or more. I recall one Portland property manager requiring income of seven times rent. That certainly discriminates against the poor, but poverty is not a protected class. You could also require larger security deposits. While requiring more money will have a disparate impact (minorities, for instance, are more likely to be poor than whites), it has strong economic justification, since you’re less likely to lose money if your tenant has lots or gives you lots.

There are other criteria that are more innovative. I recall one landlord refusing to rent to anyone who didn’t own a vacuum cleaner. There may be practical difficulties in enforcing that, but the business logic behind it is indisputable. Another is requiring renter’s insurance with you listed as co-insured. Of course, criteria like these will shrink the universe of potential applicants, since lots of people can’t afford large deposits and many can’t (or will chose not to) obtain renters insurance.

Each of these, though, has a direct bearing on the economics of running a residential rental business. That makes them easy to defend, even though they may have some disparate impact. Screening guidelines that stray from that can create trouble. I’ve met landlords who refuse to rent to anyone who doesn’t have an automobile. I suspect minorities are over-represented among non-auto owners, so there is a disparate impact. Others won’t rent to someone with a messy automobile. Is there a relationship between housekeeping and “carkeeping?” If there is a disparate impact, it may be difficult to defend the business necessity of requiring a renter to own a car or keeping it clean.

Finally, being innovative is fine, but be sure you’re on sound ground. Odd rules will garner more scrutiny. You don’t want that scrutiny to be from the enforcement people at HUD in Seattle.

My usual reminder: each circumstance is unique, so your case will be different. Before you act, be certain about what you do. Don’t rely solely on this general advice; read the law and consult others as appropriate.

This entry was posted on Sunday, April 30th, 2006 at 9:02 pm and is filed under disparate impact, screening, discrimination, smoking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.