Rejecting applications is a necessary, if unpleasant, part of a landlord’s career. However, it’s essential to have a strategy in order to maximize profit and minimize legal risk.
Choose the Right Applicants
As a landlord, your primary goal is to maximize the profit potential of your property. You can achieve this in two ways:
- Increase rent
- Decrease costs
While rents will naturally increase over time, it’s not a viable short-term strategy. Raising rents above going rates will have the effect of increasing your costs in the form of unhappy tenants.
This is because your biggest costs are vacancies and property maintenance. By accepting only the best applicants, you can keep them in the property longer and incur fewer maintenance costs as well.
Minimize Legal Risk When Rejecting Applicants
When deciding which applicant will be your tenant, there are laws in place to prevent property managers from discriminating based on a protected class. This is known as the Fair Housing Act.
The repercussions for legal issues can be harsh, as you can be sued for discrimination. On top of the lost money, you’ll also have to spend much of your time and energy dealing with this problem. Your reputation will also take a hit and can lower the desirability of your rental properties.
We’ll get into specifics in a minute, but there are a few rules of thumb to follow:
- Don’t arbitrarily disqualify a tenant. Is there a legitimate reason? Are you rejecting them because they fall into one of the protected classes? If so, you could find yourself in a discrimination lawsuit.
- Don’t make up an arbitrary rule to weed out a single applicant. For example, if you don’t like someone, you can’t put on their application that they need to make $500k a year to live in the property, unless you’re ready to make that a requirement for all applicants.
- Field fewer applicants. Detail your picky policies up front in marketing materials and in the application, and your less-than-qualified applicants will naturally filter out.
Always document a legitimate reason for denying an application and send a written notice to the applicant. This leaves a paper trail that can cover you in the event a denied applicant sues you for discrimination.
23 Legally Valid Reasons to Deny a Rental Application
Here are the most common reasons to reject a rental applicant:
- Debt-to-Income Ratio is too High
- Can’t Verify a Tenant’s Income
- Poor Credit History
- Has Filed for Bankruptcy
- History of Late Payments
- Prior Evictions
- Prior Convictions
- Provides False Information
- Won’t Do a Credit or Background Check
- Evidence of Illegal Activity
- Does Not Agree to Your Rental Terms
- History of Damaging Property
- No Rental History
- Incomplete Rental Application
- Has a Pet
- Bad Review From a Reference
- Poor Job History
- Moves Frequently
- Too Many Vehicles
- Intends to Run a Business From the Rental Property
- Belligerent/Demanding/Not Respectful/High Maintenance
- Too New to the Area
1. Debt-to-Income Ratio is too High
Property managers should ask about income and debt. One applicant can earn $100k per year, but have massive debt. Someone earning $70k per year with no debt is likely a better option for your property.
A rule of thumb is that rent plus other debts should not exceed around 36% of their income. Many property managers will find that number too strict (especially with average rents passing $2,000 for the first time in the U.S.), but your best applicants will be close to that number.
2. Can’t Verify the Tenant’s Income
Even if your applicant lists their income on the application, it’s still wise to check with their employer. If the numbers don’t line up, then you’re well within your rights to reject their application.
Your applicant is either someone who won’t be able to cover the rent, or they intentionally misled you—either way, that’s someone you don’t want in your property.
3. Poor Credit History
If they do not have a good record of paying off their debts, then you don’t want them as a tenant. This is one of the more common reasons for rejection and you can do so without threat of repercussions.
4. Has Filed for Bankruptcy
You’ll probably see this when you run their credit, and you should think hard about rejecting them. Depending on the type of bankruptcy, it can stay on their credit report for up to 10 years.
Even if they’ve been able to build their credit back up to a respectable number, you might consider rejecting them anyway. You can do so without legal issues.
5. History of Late Payments
A tenant who is consistently late on payments is a hassle for you, and is one step away from complete non-payment and eviction.
Finding out if your applicant often pays their rent late isn’t always straightforward, and will often not show up in a credit check. Federal law declares that late payments can only be reported to credit reporting bureaus after 30 days.
Furthermore, many property managers won’t report late payments to credit bureaus because of the hassle to do so. They usually need to be a member of a credit reporting bureau, in addition to the time it takes to report it. Many late payments go unreported.
Your best bet is to get in contact with a previous landlord. When asking for references, specifically request the landlord be one of them. If you have a current property address (before they’ve moved into your property), you can look that up online and likely find contact information for a landlord.
6. Prior Evictions
You can and should ask about prior evictions. You can also check eviction records yourself as it’s public record and only takes five minutes.
If your applicant has an otherwise pristine application, don’t reject them out of hand for an eviction (or other negative items). Smart landlords will ask follow-up questions. If it appears to have been a one-time situation, you can still feel comfortable giving them the lease.
7. Prior Convictions
While you should try to find out about their criminal background, some areas don’t allow you to run it. However, that’s mostly an exception and you can usually do so.
You can and should run a criminal background check and you’re within your rights to reject someone with prior convictions.
However, you cannot discriminate based on an arrest without a conviction, as an arrest does not imply guilt according to the law.
8. Provides False Information
If they lie or mislead on their application, you’re within your rights to reject their application. Practically, you’re looking for reliable renters. If someone tries to lie to you right from the start, that’s a great reason to move on from them.
It’s not always easy to discover incorrect information on the application, which means it is essential that you run their credit, check their criminal background, and get in touch with their employer. You can at least verify that information, and it’s worth the cost and time to do these things for your best prospective tenants.
9. Won’t Do a Credit or Background Check
At this point, you will wonder why the person even submitted the application. They’re likely hoping that you don’t have any better applicants and that you’ll settle for them.
In the long run, you’re better off waiting for better applicants, and there’s no legal reason to not reject this person’s application.
Always be sure to have the applicant’s permission before pulling together any reports or to begin contacting references. You will be in violation of privacy laws.
10. Evidence of Illegal Activity
A common example of illegal activity would be the use of illicit drugs.
While being addicted is a protected class as it’s considered a disability (nicotine excepted), illegal drug use on your property is not protected.
However, you’ll need some type of evidence that they use an illegal drug. Otherwise, they may claim discrimination in another form and you can be in trouble because you can’t produce an obvious reason why you rejected their application.
11. Does Not Agree to Your Rental terms
This seems like an obvious one, so let’s go a step further:
Be on the lookout for any signs of hesitation. They may give you a “yes” now in order to secure the lease, but then flout the rules later on.
While guessing their intentions can lead to a flimsy reason to reject someone, you’re technically within your rights to do so. At the very least, keep a close eye on their adherence to your lease agreement if you do decide to bring them on.
12. History of Damaging Property
The best way to get this information is to get in touch with their prior landlord. In fact, you should ask their landlord a whole host of questions, such as:
- Did they damage your property?
- Were they high maintenance?
- How was their communication style?
- Would you recommend them as a tenant to another landlord?
Most new property managers don’t realize that smoking is not a protected class and you can deny an application simply because they smoke.
The reason for this is that cigarette companies won’t allow for their products to be labeled as addicting. If cigarettes aren’t addicting, then smokers aren’t considered handicapped and therefore don’t fall under a protected class.
You can and should screen out tenants who smoke, as the average smoking-related costs to rental property owners is around $4,935. That’s a good incentive for you to include the question on your application and reject them if they answer in the affirmative.
14. No Rental History
Legally, you can decide that not having (or being able to verify) a rental history is a valid reason for rejecting an application. Perhaps the renter is a college student and you’d rather have someone who’ll stay longer term. Or, they previously owned a house and you believe they’re going to leave as soon as they can buy their next house.
While many property managers won’t use this as the only basis for a rejection, you’re within your rights to do so.
15. Incomplete Rental Application
If you’re in the position to be picky, then you can toss out any applications that aren’t finished. Otherwise, you can reach out and find out if it was an honest mistake, or if they left those parts intentionally blank.
16. Has a Pet
Yes, you can legally reject an applicant who owns a pet. However, another option (especially for an otherwise perfect applicant), is to simply charge a higher deposit. $200 – $500 is a fairly standard rate, as well as charging up to an extra $50 per month.
Of course, if you’d really like to discourage pets, but don’t want to turn away up to 70% of your applicant pool, you can hike up the rates. If a tenant is in love with your property as well as their dog, they might be willing to pay a $1,000 security deposit as well as an extra $100 per month.
However, it is illegal to reject a tenant’s emotional support animal (ESA). Some tenants will likely attempt to pass off their pet as an ESA even though it isn’t.
There is no national registry or certification for ESA, so any documentation claiming otherwise is fraudulent. In fact, there are websites devoted to creating fraudulent certificates that look and feel legitimate.
To validate your tenant’s documentation for an ESA, consider this:
- Genuine documentation will contain a proper letterhead and comes from a licensed mental health professional.
- The health professional must be licensed in the state the rental property is located in.
- A mental health screening must have taken place.
- There is no reference to a ‘registry’ or ‘online certification’
Property managers cannot charge higher rent or require a larger security deposit. You are allowed to charge a cleaning fee for anything related to the animal. If the damage to the property becomes too great, you are within your right to evict the tenant.
Be careful when approaching a tenant about their pet potentially being a service animal. If the person’s disability is clear and obvious, you cannot ask what service the animal performs. If it’s not obvious, you can ask if the animal is required because of a disability and what tasks the animal has been trained to do. That’s it.
17. Bad Review From a Reference
It’s uncommon to find references that will give an outright bad review. After all, the applicant picked them specifically because they would give a positive review!
However, their employer or prior landlord is more likely to be fully honest. If they’re down on the applicant, reject them.
18. Poor Job History
You are within your rights to reject someone if they have an inconsistent job history.
This could look like:
- Big gaps in employment
- Short employment stints
- Jumping from field to field (no set career often means lower earning potential and less job security)
- Just started a brand-new job
19. Moves Frequently
With your goal in mind to reduce vacancies, someone with a history of moving around isn’t likely to stay in your property long-term. If you have another applicant that seems more willing to stay, it’s a good idea to give them priority.
20. Too Many Vehicles
Property managers are allowed to stipulate a vehicle limit for the property, especially if parking is at a premium at the location.
This is also a low-key way to limit the amount of adults in a property. Stipulating only two vehicles allowed can keep your occupancy lower.
21. Intends to Run a Business From the Rental Property
This one is interesting, as there is a wide variance of types of business a tenant could run. From a legal standpoint, you can reject someone for any reason, as long as it doesn’t fall under a protected class.
From a practical standpoint, if your reason for rejection is flimsy, it’s easier for an applicant to claim you were discriminating and sue you.
With that in mind, a property owner could reject an applicant because they don’t want someone who runs a blog from their house, but that’s probably not a legitimate reason to reject an application.
However, if the prospective tenant wants to run a mechanic shop out of their garage or to hold private concerts in the backyard, those are more obvious reasons for rejection.
22. Belligerent/Demanding/Not Respectful/High Maintenance
Yes, a property manager can deny someone for any of these reasons! However, as mentioned previously, you’ll want evidence to support your claim.
Make sure you have emails or text messages proving their unacceptable behavior. Otherwise, they can claim that you discriminated against them and potentially have a legal case against you.
23. Too New to the Area
If you want tenants with stronger roots to the community, you can reject applicants who have just moved in. Tenants new to the area may decide they don’t like the neighborhood or their new job and may decide to leave your rental at the first opportunity.
Reasons You Cannot Reject an Application
Here is a list of protected classes that you, as the property manager, cannot use as basis for rejecting an application:
- National origin
- Gender/gender identity
- Familial status (can’t reject them because they have kids or if a couple isn’t married)
This list is set by the Fair Housing Act—you can find more information there about other legal issues around renting, such as harassments, threatening, and what you can and can’t say in your advertising.