Navigating Fair Housing laws is a crucial aspect of tenant screening in commercial real estate. Compliance with these laws protects you from legal issues and promotes a fair and inclusive rental process.
Given the higher stakes and significant investments involved in commercial properties, conduct a detailed tenant screening. A thorough and compliant screening process can help you secure reliable tenants, maintain the value of your property, and foster a positive community environment.
In this blog, our team at Vista Holdings will discuss the importance of understanding protected classes, building fair and objective screening criteria, and documenting your screening process.
Understanding Protected Classes
The Fair Housing Act, enacted in 1968, aims to prevent discrimination in housing-related activities. Understanding protected classes is the first step in ensuring compliance. Here are the key protected classes under the Fair Housing Act.
- Race: Discrimination based on race is prohibited under the Fair Housing Act. This means you cannot deny housing or treat applicants differently based on race. This protection aims to eliminate racial segregation and ensure equal housing opportunities for all.
- Religion: The Fair Housing Act also protects individuals from discrimination based on religion. You must not favor or exclude applicants based on their religious beliefs or practices. Ensuring religious freedom in housing helps create a diverse and inclusive community.
- National Origin: The Fair Housing Act also covers discrimination based on national origin. This means you cannot refuse to rent to someone because of their ethnicity, accent, or immigration status.
- Sex: The Fair Housing Act protects against discrimination based on sex, including gender identity and sexual orientation. This ensures that all individuals, regardless of gender, have equal access to housing opportunities.
- Familial Status: Family protection covers families with children under 18, pregnant women, and individuals securing custody of children under 18. You cannot refuse to rent to families with children or impose different terms or conditions based on the presence of children.
- Disability: The Fair Housing Act prohibits discrimination against individuals with disabilities. This includes making reasonable accommodations for tenants with disabilities, such as allowing service animals or modifying rental policies to ensure accessibility.
Building Fair and Objective Screening Criteria
Building fair and objective screening criteria is essential to complying with fair housing laws and promoting a fair rental process. Focus on verifiable factors relevant to a tenant's ability to fulfill the lease agreement.
Income
Establishing a minimum income requirement ensures that tenants can afford the rent. Typically, a tenant's gross income should be at least three times the monthly rent. Verify income through pay stubs, tax returns, or bank statements.
This step helps you assess whether the applicant has the financial stability to consistently meet rent payments. For commercial properties, consider additional factors such as business revenue, financial statements, and bank references to get a comprehensive view of the tenant’s financial standing.
Credit History
A tenant’s credit history provides insight into their financial responsibility. Review credit reports to identify any red flags, such as late payments, high debt levels, or bankruptcies. 
Setting a minimum credit score can help you screen for financially reliable tenants. For instance, a score above 700 is generally considered good, while a score below 600 might indicate financial difficulties. Use tools like Experian Connect, TransUnion SmartMove, and Equifax to perform detailed credit checks.
For commercial tenants, consider checking the business credit score as well, which reflects the company's creditworthiness.
Rental History
Reviewing an applicant’s rental history can help you understand their reliability as a tenant. Contact previous landlords to verify rental history, looking for patterns of late payments, property damage, or disputes. A positive rental history indicates tenants are likely to fulfill their lease obligations.
For commercial properties, this also includes verifying the tenant's history with other commercial leases and speaking with property managers or leasing agents to get a clearer picture of their past behavior and reliability.
Employment Verification
Verifying employment helps confirm an applicant’s income and job stability. Contact employers to confirm job title, employment status, and income. Consistent employment history can strongly indicate a tenant’s ability to pay rent on time.
For commercial tenants, verify the business’s operational status, longevity, and stability in the market. This might involve checking business licenses, reviewing financial statements, and speaking with business partners or industry contacts.
Documenting Your Screening Process
Maintaining thorough records of your screening procedures and outcomes is crucial for legal compliance and transparency. Here’s how to document your tenant screening process effectively.
Application Forms
Keep copies of all completed application forms. This provides a record of the information provided by each applicant and ensures consistency in the information collected. Store these forms securely, digitally or physically, to protect applicant privacy. Ensure that your application forms are comprehensive and include sections for personal information, financial details, and references.
Screening Reports
Maintain copies of all screening reports, including credit checks, background checks, and rental history verifications. These documents support your screening decisions and demonstrate that you applied the same criteria to all applicants. Use a secure system to store these reports, ensuring they are easily accessible for future reference. Regularly review and update your screening processes to stay compliant with legal standards.
Communication Records
Document all communications with applicants, including emails, phone calls, and letters. This helps track the timeline of the screening process and any issues that arise during communications. Keep detailed records of the dates, times, and content of these communications to ensure transparency and accountability. Use property management software to log these interactions and maintain organized records.
Decision Records
Keep records of your final decisions regarding each application. Note the reasons for approval or denial, ensuring these reasons are based on your established, objective criteria. This documentation can be crucial if your decision is challenged.
During the decision-making process, include notes on the applicant’s financial stability, rental history, and other relevant factors. Regularly review and audit these records to ensure consistency and fairness in your screening practices.
Easily Navigate Fair Housing Laws With the Help of Vista Holdings
Navigating Fair Housing laws is essential for a fair and legal tenant screening process in commercial real estate. By understanding protected classes, building objective screening criteria, and thoroughly documenting your procedures, you can ensure compliance and promote a fair rental process.
At Vista Holdings, we specialize in providing comprehensive property management services, including tenant screening that complies with Fair Housing laws. Our team of experts is dedicated to helping you create a fair, transparent, and efficient screening process.
Ready to streamline your tenant screening process while ensuring compliance with Fair Housing laws? Connect with us today to learn how we can help you achieve your property management goals.
