Tenant Screening: A Landlord’s Primer in Compliant Screening & Avoiding Legal Pitfalls

Jan 18, 2024
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By: Ariel S. Holzer, Esq. and Brice A. Wilkerson, Esq., MBA 

Introduction: The Importance of Tenant Screening in New York

Screening – running credit reports, background checks, and verifying references for prospective tenants (“Applicants”) – is a critical aspect of property management, particularly in New York, where the laws are both extensive and stringent. This article aims to equip landlords with an understanding of the legal landscape surrounding Screening in New York to help navigate the complexities and avoid potential pitfalls.

Federal Law: The Foundation of Tenant Screening

Protected Characteristics and Reasonable Accommodations

The Fair Housing Act (“FHA”) sets some of the most important federal standards for tenant screening by prohibiting discrimination based on race, color, national origin, religion, sex, familial status, and disability.[1] The FHA also requires reasonable accommodations for tenants. For example, a landlord may be required to permit service animals and emotional support animals in a property that generally has a "no pets" policy. The FHA does not offer landlords a safe harbor[2] with respect to tenants’ policy based requests for reasonable accommodation. These are considered on a case-by-case basis except where it is plainly apparent an accommodation is required, as in the case of a seeing eye dog, in which case accommodation is required. New York adds to these protections requiring additional compliance, which we discuss later in this article.

Credit and Other Investigative Reports

The Fair Credit Reporting Act (“FCRA”) is another critical piece of federal legislation that landlords must consider when Screening.[3] The FCRA governs how consumer credit information is collected, shared, and used, and it applies to Screening – It even applies to picking up the phone for good old fashioned personal reference checks.[4] Under the FCRA, landlords are required to, among other things, obtain written consent from prospective tenants before Screening. If a landlord decides to take an "adverse action" based on Screening—such as denying the application, requiring a co-signer, or charging a higher deposit—they must provide the applicant with an "adverse action notice." [Click here for more about adverse actions and notices.]

New York State Law: Building on Federal Requirements

Employment and Income Discrimination

New York State adds another layer of complexity by prohibiting discrimination based on source of income.[5] This means landlords cannot discount income from public assistance, grants, or pensions when considering an applicant's eligibility. In practical terms, landlords must treat all lawful, verifiable, income sources equally, whether it's a salary, Social Security benefits, child support payments, or anything else. This extends to employment status as well; for instance, landlords cannot categorically deny Applicants who are freelancers or self-employed. What this means is that Screening should be tailored to verifying income as reliable. For employment of any kind, history is a great starting point with things like pay stubs. For benefits programs, asking to review entitlement and award letters, or for case worker contact information, and so on.

Prohibited Questions and Other Considerations in New York

New York law imposes additional restrictions on the questions landlords can ask during Screening. One example is what is colloquially known as the “[anti] blacklist law.”[6] This law protects Applicants who have had past disputes by creating a rebuttable presumption that a landlord has unlawfully discriminated if they so much as have requested (let alone obtained) dispute records, such as evictions. That’s right, potential access alone is enough – Tenants don’t even need to show that the denial was based on the dispute records for liability to accrue.

This rebuttable presumption means that if a landlord is found to have requested, accessed, or used this prohibited information, the burden shifts to the landlord to prove they did not unlawfully discriminate against the Applicant. Violating these restrictions can also result in fines ranging from $500 to $1,000 per violation and could expose landlords to further legal action. That the landlord was unaware, or had a broker or agent run the Screening, does not relieve the Landlord from liability. The best course of action here is two pronged: (1) make sure you know what is in your Screening,[7] and (2) clearly and consistently document your Screening process so that you are prepared to rebut any presumptions.

The Pros and Cons of Written Criteria

Having clear, written criteria for tenant Screening can be a double-edged sword. On the positive side, it offers a structured framework that can help rebut presumptions of discrimination, especially under New York's stringent laws. A well-documented process can shift the burden back onto the accuser by providing an accused landlord means to demonstrate that lawful criteria were relied on when making the decision. Clear policies can also help make leasing more efficient and less subject to bias by minimizing day-to-day case-by-case decision-making and instead focusing on crafting compliant policies.

The other side of that sword is that written criteria can become a liability if not carefully crafted. Inadvertently including prohibited considerations, like eviction history questions, can unnecessarily expose landlords to legal risks. Or, for larger landlords, otherwise compliant policy may still accrue liability if, in practice, it results in a disparate impact.[8] But whether a landlord of any size opts for written criteria, or a case-by-case approach, consistency and meticulous documentation remain the most important keys to navigating this piece of the legal landscape effectively.

Occupancy Restrictions: A Cautionary Note

While having a written policy can offer some protection, landlords must also be cautious when setting occupancy restrictions. New York State law, colloquially the “Roommate Law,” prohibits landlord from restricting occupancy in certain ways except where fire, health, and safety codes require otherwise.[9] While it may be tempting to implement policies like “no more than two tenants per unit,” it is critical to understand those restrictions must be rooted in legitimate, lawful, exceptions to be considered during Screening. And, as a practical matter, restrictions not rooted in those bases will also be unenforceable later during the tenancy. Local rules vary, but it’s usually good to start by checking local zoning and building code.[10]

Common Pitfalls in Tenant Screening

While compliant Screening is optimal, not even the most meticulous documentation can save a landlord from practical, operational, errors that can have legal repercussions. One such pitfall is not adequately verifying references. Overlooking the importance of credit checks can also be detrimental. These are particularly common errors which can creep in, especially when a landlord likes an Applicant and relies on a case-by-case process. Furthermore, landlords must be cautious about the limitations imposed by New York State on application fees and security deposits. For instance, [charging an application fee higher than $20 is illegal]. Some other common mistakes are charging more than one month’s rent in deposits and advances, improperly collecting “key money,” improperly collecting broker’s fees, and potentially committing de facto unlawful discrimination based on familial status with occupant-based pricing.

Conclusion: Navigating the Complex World of Tenant Screening

Screening, while essential, is a multifaceted process, laden with legal intricacies that landlords can't afford to overlook, especially in New York. Failure to comply with federal and state laws can result in severe penalties, making it imperative for landlords to stay well-informed. Simply forgoing Screening can be even worse. But, by adopting a meticulous and well-documented screening process, landlords can harness compliance Screening to mitigate legal risks and foster a more stable rental business.

[1] https://www.hud.gov/program_offices/fair_housing_equal_opp/fair_housing_act_overview (Simple overview published by the US Department of Urban Development, “HUD”).

[2] There are “safe harbors” with respect to certain design standards, but there are no corresponding provisions for other policy based accommodations.

[3] https://www.ftc.gov/legal-library/browse/statutes/fair-credit-reporting-act (Statute and related summary materials).

[4] https://www.consumerfinance.gov/rules-policy/regulations/1002/c/ (Form instructions explaining when certain notifications requirement apply).

[5] https://ag.ny.gov/publications/source-income-discrimination (Simple explanatory letter published by the office of Letitia James, New York State Attorney General).

[6] https://ag.ny.gov/press-release/2022/attorney-general-james-cracks-down-tenant-blacklisting (Public statement discussing Clipper Equity as an example of noncompliance published by the office of Letitia James, New York State Attorney General)

[7] This is an especially prudent step to take when using a national screening vendor because many states do not share New York’s unique requirements. Consider partially completing a sample application yourself to view the full Applicant experience.

[8] In CNY Fair Housing v. Swiss Village LLC, et. al. [ Article from US Attorney’s Office |  WestLaw Case ], a requirement that at least one English-fluent tenant reside in an apartment was found to violate the FHA and NY Human Rights Law, not because “limited English proficiency alone constitutes a protected class,” but because the disparate impact of the policy worked unlawful discrimination in practice against members of protected classes on, for example, the basis of national origin.

[9] New York Real Property Law § 235-F

[10] Town of Hempstead, NY Code, Part III, Ch. 88, Sec. 88-7 (For example, in Hempstead, a minimum of 150 square feet is required for the first occupant and an additional 100 for each additional. Taken in combination with other Code Sections, such as minimum kitchenette size, this also implies things like minimum bedroom size. The Code also provides guidance for who counts as an “occupant,” some Codes include children, for example, and others do not, and some have different standards based on age).

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.

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