Screening Tenants in a Tight Rental Market

By Thomas R. Lawing, Jr., Commission Chairperson, and Curtis E. Aldendifer, Associate Legal Counsel

In a tight rental market, competition between multiple applicants for a single vacancy is becoming the norm rather than the exception.  While this is good for the landlord, it places additional challenges on the property manager to properly screen prospective tenants with the goal of selecting the applicant who best meets the owner’s requirements. A thorough tenant screening increases the chances of procuring a tenant who will maintain the landlord’s property and pay rent on time.

In order to determine the minimum qualifications for a prospective tenant, the property manager must first determine the owner’s needs and expectations. Typical issues to address include whether pets will be allowed, whether smoking will be permitted, and the number of permitted occupants. The property manager and landlord should also review the application form to ensure that it covers the essential questions.  These and related questions should be resolved at the time the property management agreement is formed.

While many property managers may attempt to pre-screen tenants to eliminate unqualified candidates early in the process, it is important that each interested person be provided with an application regardless of their qualifications. Each applicant should receive an identical application form and be asked the same questions. Picking and choosing who receives an application form or providing different application forms to different applicants may violate state and federal fair housing laws.

The property manager should take care to inform each applicant in writing regarding non-refundable application and “hold/reservation” fees, and what will be required for the formation of a binding rental agreement. In a situation where multiple applications have been submitted, each applicant should be informed of the existence of competing applications and the manner in which the applicants will be notified as to whether or not they were selected.  The applicant should also be informed regarding the types of information that will be accessed during the screening process, such as credit reports, criminal history, rental history, employment verification and history, and personal references.  The property manager should also explain how the information obtained during the background check will be used in the selection process, and the type of information that might result in a rejection of the application, such as a low credit score or prior eviction. The tenant will have to provide written consent for the property manager to obtain some of the required information.

When the application has been submitted, the property manager’s next task is performing the background check to verify the information provided by the applicant. A typical background check might include obtaining a credit report, criminal history, rental history, and employment verification.

After the background check has been completed, the property manager is ready to make a selection in accordance with the tenant qualifications agreed upon with the landlord. The selection process should be based on an objective and documented system to avoid possible fair housing issues.

Once the applications have been evaluated, the best qualified applicant should be notified of the deadline (e.g., within 72 hours of acceptance) for submitting the signed lease agreement, security deposit, and applicable pet fee.  If the applicant fails to respond within the prescribed time limit, the next most qualified applicant would then be notified. While some property managers notify all qualified candidates and award the rental to the first applicant to submit a signed lease agreement and security deposit check, such an approach invites claims of discrimination and may even result in a fair housing complaint.

The unsuccessful candidates should also be notified. If the applicants are otherwise qualified, the property manager can suggest other available rental properties for them to consider. If an applicant was rejected, the property manager may notify him or her of the basis of the rejection, such as poor credit score, adverse rental history, or unacceptable criminal history; however, such notification is not required. If the rejection was based on information obtained from a credit agency, the property manager will need to provide the applicant with information regarding the credit agency that provided the information in accordance with Fair Credit Reporting Act requirements.

Thorough tenant screening will benefit both the landlord and property manager. The selection of a reliable tenant who maintains the property will provide the landlord with a steady source of income and will reduce the time and energy expended by the property manager in servicing the account.

This article came from the October 2014-Vol45-2 edition of the bulletin.