HOA Law Blog
By Leena Danpour, Esq.
California’s Civil Rights Department (CRD), formerly known as the Department of Fair Employment and Housing (DFEH) has the responsibility of enforcing state fair housing laws, such as California’s Fair Employment and Housing Act, which makes it illegal for housing providers[1] to discriminate against tenants with a protected characteristic.[2]
Many boards of directors want to gain control or maintain oversight over prospective tenants renting out units in their community, because, in their opinion, many tenants fail to abide by the Rules and other Governing Documents of an association. However, taking on the control and oversight of tenant approval will likely expose the association and board to liability. Why? Because they would now be subject to the regulations set forth by the CRD and Housing and Urban Development (HUD), which in turn would subject the association and board to potential discrimination lawsuits from tenants who have not been approved to live at the association.
Due to the heightened issues of liability, alternatively, an association may be able to require that owners perform background checks. This, by the way, is not without potential liability as well since associations have the ability to hold owners accountable for the actions of their tenants and it is likely, if an association requires owners to obtain background checks, that a potential tenant could assert discriminatory intent. Owners have many forms of screening methods at their disposal, and it is best to leave such to them to handle. The most important aspect of these methods is that it does not discriminate against a protected class. CRD and HUD specifically provide guidance on two types of screenings: criminal background checks and income eligibility.
Thus, with close attention to detail and policy, an association, if a board decides the risk is worth the benefit, can carefully conduct screenings on prospective tenants, via the owners, before signing a lease. This requirement will be through the lease addendum routinely supplied by the California Association of Realtors. This obligation transfers the liability to the owner but still requires that owners follow certain guidelines (outlined below) to not violate regulations set forth by CRD and HUD. It is also fundamental that the board mandate the requirement to screen tenants and then immediately step out of the way of the process, leaving it to the owners to handle.
Criminal Background Checks
Under CRD, a landlord can check the criminal background of all prospective tenants. The following explains what a landlord can do. Keep in mind, it is the owner, not the association that will go through this process. Once the criminal background check is complete, if a prospective tenant has a conviction on their record, the landlord must assess whether it is a “directly related conviction,” or a conviction that has a direct and specific negative bearing on a substantial, legitimate, and nondiscriminatory interest or purpose of the housing provider, such as the safety of residents. In order to make this assessment, the landlord must consider information such as (1) the nature and severity of the crime; (2) facts or circumstances surrounding the criminal conduct to see if they directly bear on the person’s ability to be a good tenant; (3) the amount of time that has passed since the criminal conduct occurred; (4) whether the person was a minor; (5) whether conduct arose as a result of disability or domestic violence; (6) whether the person has maintained a good tenant history before/after conviction; (7) whether there is evidence of rehabilitation efforts. Also, keep in mind that the owner will be prohibited from considering infractions or arrests that didn’t lead up to a conviction. Clearly, the aforementioned is a slippery slope with the association not being involved in the process.
Income eligibility
Further, housing providers can screen for income eligibility, but they must consider all legally verifiable sources of income for an applicant. Verifiable income sources include any money earned or received by a household. The housing provider must consider the total income of persons residing together on the same basis as the total income of married persons residing together. It is very important to note that housing providers CANNOT discriminate against a tenant based on their source of income. Therefore, the owners could not demand proof of employment or rent the unit only to those who have a particular job or type of employment.
Implementation
The most practical way to implement this new standard into the leasing process is to amend the lease addendum. First, check to see whether the current leasing addendum has language regarding criminal background checks and income eligibility checks. The new language would need to be added to explicitly make clear that the owner of the unit, not the association, will process a criminal background check and an income eligibility check on EVERY applicant. There should not be language requiring that the results of the background checks be provided to the association, as you do not want it to be argued that the association retains de facto control or oversight over the choice of tenant. Instead, the extent of the oversight should be the owner verifying with the association that they have completed the screening requirement.
Even with this modified approach, many associations may still be hesitant to mandate owners to conduct background checks deciding the risk is not worth the benefit. For those the best alternative is to review the association’s fining policy and increase it to apply to all residents in regard to leasing violations and for conduct that is typically committed by tenants.
[1] Housing providers include landlords, real estate agents, home sellers, builders, mortgage lenders, property management companies, homeowners associations, corporations, and others who rent residential properties in California (except for homeowners who live in their house/condominium/single-family unit and rent out only one room within that unit) (https://calcivilrights.ca.gov/wp-content/uploads/sites/32/2020/02/SourceofIncomeFAQ_ENG.pdf)
[2] California law protects individuals from illegal discrimination based on race, national origin, citizenship, age, religion, disability, sex, gender, sexual orientation, gender identity, genetic information, marital status, familial status, source of income, military status