Rejecting potential tenants is a necessary evil. However, doing it the right way can not only preserve your reputation, but also keep you out of legal trouble.
How to Deny Rental Applicants
Creating a process for screening and rejecting tenants is essential to the long-term health of your business. Not only does it help you to avoid discrimination, but it also helps to make sure you’re getting the best long-term tenants you can find. Here are the steps you need to take to legally deny rental applications:
- Determine Your Criteria
- Reject the Obvious ones
- Order Tenant Screening Reports
- Compare the Remaining Against Each Other
- Send Out Letters to All Who Get Rejected
1. Determine Your Criteria
Before you even look at an application, it’s a good idea to create a document that spells out your minimum qualifications for renting your property. This could look like:
- Debt-to-income ratio can’t be worse than 40%
- A credit score of at least 600 (your ideal renter probably has a higher credit score, but these are just minimums for your first round of screening)
- No tolerance for prior evictions or violent felonies
- No pets
- No smoking
It’s always good practice to have this list of set criteria (and probably one more in-depth than outlined here) for a couple of reasons.
- Saves time during screening – If you have a desirable property, it’s possible that you’ll get dozens of applicants. If you can apply your minimum qualifications and scratch off most of the applicants, that’s a big win.
- Avoid discrimination lawsuits – A rejected applicant may claim you discriminated against them. But, if they have a credit score of 580 and you can show this document detailing that you don’t accept applicants with credit below 600, the applicant likely won’t have a case.
Of course, it goes without saying that you must stick to this document. It undermines your attempts to avoid discrimination if you have a current tenant in another unit who has a prior eviction or owns a pet.
Always use the same criteria for all applicants. Don’t raise the requirements for an applicant that you didn’t like with the goal of an easy rejection. They’ll have a slam-dunk discrimination case in turn.
2. Reject the Obvious ones
Now that you’ve determined your criteria, it’s time to actually start your first round of weeding out the low-quality applicants. As mentioned previously, the first pass-through should be to get rid of the ones that you won’t even consider.
Along with actively reviewing and rejecting these applicants, you should also use strategies to have applicants filter themselves out.
You can do this by:
- Mentioning your minimum qualifications on the application.
- Explain what is expected of your tenants (lawn care, utilities, landscaping, two-year contracts, etc.).
- Tell them that you’ll be verifying all information, including talking to references, prior landlords, and their employers.
Spelling all this out on the application itself will have the effect of deterring many low-quality applicants from even applying. This is a huge win for you, as it saves you time, money on screening costs, and fewer opportunities to have discrimination cases filed against you.
3. Order Tenant Screening Reports
Many landlords use tenant screening services that will pull all the necessary reports, such as credit history, eviction history, criminal background, and more.
In most cases, applicants will submit an application fee, which is often put towards tenant screening costs. However, there’s probably not a good reason to pay for screening for more than 3-4 qualified applicants.
Depending on how many applications you received, this may require denying some more applications before ordering screening reports.
4. Compare the Remaining Applicants Against Each Other
At this point, you might still have two or three flawless candidates, or maybe all of them have only a single flaw in their history.
It’s best practice is to pick the applicant that submitted their application first. Deciding on candidates on a first-come, first-served basis is a commonly recognized and accepted practice for deciding between qualified applicants.
Avoid the urge to pick the one that you like the best because, without a valid reason, you could find yourself in a discrimination lawsuit.
A tenant applies to rent a property right after the landlord begins accepting applications. They have a stellar rental history and a good income. Later, they find out that their application got rejected and the person who got it applied after they did. They never got a rejection letter, or the letter they got didn’t have a great reason to deny their application.
That’s the basis of a discrimination lawsuit.
5. Send Out Letters to All Who Get Rejected
An often overlooked part of denying a rental applicant is notifying everyone who had their application rejected.
It’s important to note that if an applicant was rejected for a reason found on a consumer report (credit, rental, eviction, or criminal history, for example), the landlord must submit what’s called an adverse action notice.
According to the Fair Credit Reporting Act (FCRA), an adverse action refers to:
- Denying a rental application
- Not renewing a lease
- Requiring a co-signer
- Requiring a higher deposit (or any deposit if not required of other applicants)
- Charging higher rent
For example, let’s say that you found out the applicant’s credit score is 580, and you decide to reject their application. You must send them an adverse action notice that includes, either written or electronically:
- Contact info for the consumer reporting agency (CRA) that put together the report.
- A statement that the CRA was not the one that chose to take the adverse action against the applicant and cannot explain why the choice was made.
- Notice that the applicant can receive a free copy of their report and dispute the accuracy and completeness of the information.
- Their credit score.
These adverse action notices will often form a good chunk of the rejection letters you need to send. If an applicant is denied for a reason other than what was found on their tenant screening report, there is no legal requirement for telling them why they were rejected.
Send Letters to All Rejected Applicants
Whether required by the FCRA or not, landlords should still send letters to all applicants who have been rejected as it can help avoid discrimination lawsuits.
For example, someone may know that they have excellent credit, good income, and good rental history and believe they’re going to get the lease.
However, perhaps the landlord calls a reference and gets a bad review. Or a previous landlord says that they neglected to take care of the property. Those won’t show up in a tenant screening report but are still a legitimate basis for rejecting an applicant.
If this applicant is from another country, they may believe that’s the reason they were rejected and could be tempted to sue the landlord. A rejection letter explaining the denial will usually prevent a lawsuit.
Rental Rejection Letter Example
Dear [Name of Applicant],
We appreciate your interest in [Property Address], we regret to inform you that your application was denied for the following reason(s):
- Incomplete application
- Your information could not be verified
- Your credit score did not meet the minimum requirements as obtained by [Screen Service name]
- Debt-to-Income ratio did not meet the minimum requirements
- Prior eviction
- Criminal history
- Unsatisfactory reference
If you have any additional questions regarding your application, please do not hesitate to contact me directly at [Contact Information].
Sincerely,
[Your name]
Should the tenant be denied due to their credit score, be sure to add any information required by state law informing the tenant of their rights and ability to dispute the report.
Deny An Application Without Discriminating
The Fair Housing Act (FHA) lists protected classes that cannot be used as a basis for denying rental applications (or taking any adverse action). These classes are:
- Race
- Color
- Religion
- Sex (including gender identity and sexual orientation)
- National origin
- Familial status
- Disability
Implied in this list are things like health, marital status, age, number of children, and more. That’s far from a complete list, and you should consult an attorney if you’re unsure if discrimination could be at play.
The FHA is a federal regulation, but some states place a greater burden on the landlord. For example, some areas don’t allow you to deny an applicant for not submitting a social security number, even though that’s not found in the FHA. Other locales don’t let you take criminal history into account.
Now, here is a list of common reasons that a landlord CAN use to deny a rental application:
- Debt-to-income ratio
- Can’t verify information (income, employment, credit, criminal background, etc)
- Poor credit history (lots of debt, too many missed payments, bankruptcies, etc.)
- History of late payments
- Prior evictions
- History of damaging property
- Smokes
- Has pets
- No rental history
- Poor reviews
- Inconsistent/poor job history
- Moves frequently
Again, this is far from a complete list. The real answer is that a landlord can reject applications for anything not listed in a protected class, although that can be tricky to navigate. Consult with an attorney to make sure you’re protected.
Best Practices for Avoiding Discrimination
When denying applicants, landlords must understand not only the discrimination rules but also how to appear to not be discriminating. It’s possible for landlords with the best intentions to still be sued for discrimination for not following all of these best practices:
- Treat everyone the same – An easy way to get in trouble is to treat your applicants differently. If you ask different questions or have different requirements for just one or two people, it’s easy to make a case they were singled out for discrimination.
- Have self-filtering mechanisms in place – Be sure that your application states your high standards and requirements. The fewer applications you have to field, the fewer opportunities there are for discrimination suits.
- Notify everyone of the reason for denial – The FCRA requires notification for adverse actions taken because of a consumer report. Go above and beyond and send a rejection letter to everyone who applied.
- First come, first serve – When choosing between equally qualified candidates, pick the one who submitted their application first.
