Renting property to tenants can be very risky. While it’s great to assume the best of all people, there are going to be situations where tenants cause problems, ruin your property, or even sue you for damages. The rental industry isn’t for the faint of heart!
With the right tools and information, however, it is possible to be a successful and knowledgable landlord. One issue that a lot of landlords have is screening and choosing the right tenants for their properties. By choosing the right tenants, you can protect your investment.
Some landlords get carried away when trying to choose their tenants because of their desire to find the best of the best tenants. Denying rental applications is legal, of course, but you cannot deny a prospective tenant’s application simply because they aren’t exactly what you want in a tenant.
It’s important to understand what legal reasons to deny a rental application exist. By learning these reasons, you can learn how to decline a tenant application successfully and without any legal ramifications.
Let’s get started so that you can get this important knowledge as soon as possible!
A Table Of Contents For Valid Reasons To Deny A Rental Application
- Can A Landlord Refuse To Rent To Someone?
- Why Can’t Landlords Deny Any Application?
- Legal Reasons To Deny A Rental Application
- Invalid Rejection Reasons
- How To Decline A Tenant Application
- Choosing Tenants The Right Way
One question that many landlords have at some point during their career in the rental business is whether or not they are able to refuse to rent to someone. Whether they came across a renter with bad credit or they just didn’t like their application, there are a lot of reasons why you may want to deny a renter.
The problem doesn’t lie in whether or not you want to refuse to rent to someone but in whether or not you have the legal right to deny their application. Due to discrimination and other immoral practices, there are laws today that limit why and how landlords can deny renter applications.
As mentioned above, there are laws at the federal, state, and local level that dictate the reasons that are and are not valid legal reasons to deny a rental application. If these laws did not exist, you would be able to deny any renter for any reason.
Unfortunately, not all landlords are good people, and this means that there have historically been some landlords that use discriminatory reasons such as race, religion, or gender to deny applications for their rental properties. Laws were created to protect renters from these issues when house hunting.
There are, of course, some legal reasons that you can rely on to deny applications. Otherwise, you would have to accept the very first application every single time! Take some time to become familiar with these reasons and how they will play into your business decisions.
Today, we’ll highlight five valid reasons to deny a rental application. This list is not exhaustive, and it should be noted that some of these reasons may vary slightly depending on the specific jurisdiction and state that you work in.
1. Income-To-Rent Ratio
Property managers and landlords are allowed to reject rental applications for those that do not make enough money to be able to afford to rent the property.
As a general rule, landlords often require that you make at least three times the monthly rent to be able to live there. In some cities, landlords may require that you have an even higher income-to-rent spread to reduce the risk of unpaid rent.
Let’s take a look at an example. Let’s say that the rent for a location is $3,000 per month and $12,000 per year. This means that your salary would need to be at least $120,000 per year to be able to rent the apartment.
As a landlord, you are permitted to ask for evidence of the applicant’s income. This proof can be given as a pay stub, letter of employment, or even a direct deposit statement. If a prospective tenant cannot verify their income or comparable funds for you, you are allowed to deny their application at will.
2. Too Many People
This is a confusing point, but it is possible to deny an applicant because there would be too many people living in the house. The decision about what number is “too many” is not up to the landlord, but rather it is mandated by the local, state, and federal housing departments.
To find out how many people you should allow at any of your rental properties, check the relevant occupancy laws. A good basic rule to follow is two people per habitable room plus one extra person. For more information on occupancy laws and how they work, check out our complete article here.
3. Bad Credit
Landlords are permitted to set a minimum credit score that is required to rent any of their properties. While this number cannot be changed whenever you feel like it, it can be used as an indicator of whether or not a renter is going to be a good fit for your property.
Credit scores are indicators of financial history, and that is why the law permits the use of them as a deciding factor when looking at rental applications. Remember, however, that you must be consistent in your decision making when you use credit scores as a factor in your choice.
4. Evictions & Unpaid Balances
Landlords can deny applications for those that have unpaid balances left at former rental properties and for those that have collections agencies looking to collect money from them.
Additionally, it is legal to deny applicants with a long history of evictions. While one eviction a very long time ago should be considered gently when making your decision, more recent evictions can be a serious deciding factor.
5. Incorrect Information
Finally, if you discover that any information on the renter’s application is unverifiable or false, you are permitted to deny their application until the information is corrected and they have reapplied.
For example, it is possible that a potential renter could create a fake former employer or landlord to use as a reference. If you contact the information provided only to discover that the applicant lied, you have gained a legal reason to deny the application completely.
Similarly, discovering that an applicant lied about their income is another valid reason to turn down an application. Falsified information can even be used to evict a tenant if the information had played a factor in your choice to rent to the tenant.
We’re going to suggest some final bonus reasons that you can use to deny an application as well.
First, most states allow you to deny applications for renters that smoke if you do not allow smoking at the property. You can also deny those with pets if your property doesn’t allow pets. Even if the tenant says that they will not smoke or keep pets at the property, the knowledge that they currently have or do these things is sufficient to deny their application.
Second, some states and cities allow you to deny applications from renters with specific types of criminal history. While HUD recommends that you carefully consider whether or not the record in question has any bearing on their rental reliability, you are permitted to use this information for some of your decision-making.
Just as there are legal reasons that you can deny an application, there are some aspects that you can never use to make your decision.
Specifically, the Fair Housing Laws forbid you from using discrimination based on any of the following protected classes to make your choice:
- Sexual orientation
- National origin
- Gender/Gender identity
- Familial status
- Participation in the Section 8 Program or other subsidy programs
- Marital status
- Other arbitrary discrimination
For more information about Fair Housing Laws and the most up-to-date information, check out the Housing Department’s website.
Now that you know more about what legal reasons for denying a rental application are allowed, let’s talk about how to actually go about denying the application. There are a number of rules and regulations about how you should go about this, so pay close attention.
What Needs To Be Done
To deny a tenant application, you need to let the prospective tenant know that you will not be selecting their application by sending them an adverse action letter. This letter informs the tenant why they are being denied, and if there is any way that their application can be reconsidered.
How To Do It
Step 1: Decide To Accept With Conditions Or Deny
Decide whether you will completely deny the application or if you would prefer to accept the application with some conditions such as a higher security deposit for renters with pets.
Step 2: Write The Letter
Now, you’ll need to put together the actual notice for the tenant. There are many templates on the internet, but we have three different adverse action notices that can be used for three specific situations:
- Application denial because of background check or credit score
- Application denial for another specific reason
- Application denial based on results from a screening agency
Choose the appropriate template and then fill in all of the relevant details. Be sure to be as thorough and clear as possible to prevent any potential confusion.
Step 3: Mail The Letter
Finally, you will need to mail the letter to the tenant. Be sure to include a copy of this information about the consumer’s rights under the Fair Credit Reporting Act, particularly if you used their credit score as part of the screening process. You are legally obligated to provide that information to the applicant.
As you can see, it can be quite complicated to choose the right tenant when you are worried about what reasons are legal to use in your decision and which are not. Ultimately, you shouldn’t have to worry too much about using invalid information in your decision as long as you keep the rules of the Fair Housing Act in mind at all times.
Really, your decision must be based not on what you cannot consider but on what you should consider. The main factors to look at when choosing tenants are:
- Credit score
- Eviction history
- Background check
- Landlord and employer references
- Income-to-rent ratio
With all of this information, you can gain a great picture of whether or not the prospective tenant is likely to be a reliable and trustworthy tenant for your property. If the thought of needing to gather all of this information safely is overwhelming, remember that you can use a qualified screening service such as RentPrep to help you complete the screening process smoothly.
Why Tenant Selection Matters
Finding great tenants is incredibly important. While you might be tempted to give up on the search for a qualified tenant and rent to whoever applies first, it is always better to wait for the right tenant.
When you lease your property out to a tenant, you are giving them the legal right to use the property as if it is their own. That is a very large risk on what is likely a large investment, so you want to be sure that you are only entrusting your property to tenants that are going to treat your property with respect.
By taking the time to select great tenants that you can trust, you are more likely to see a high return-on-investment. Additionally, the chances of you having a positive relationship with the tenant are higher, too. All-in-all, the time required to find the right tenant is a very worthwhile investment!
Don’t Get Into A Legal Conundrum
Be smart when you are making your rental decisions. Spend the time needed to fully understand what types of reasons are legal to use in your tenant selection process, and then be sure to send out all property notifications to any applicants that you deny during the process.
Getting into legal trouble because you denied an application for an invalid reason is sure to waste a lot of time and money, and it could even cause your business long-term problems. Ensuring that you understand the rules in advance negates this risk and helps you have a more successful business future!