How to Avoid Income Discrimination Lawsuits as a Property Manager

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Property managers need to be especially aware of income discrimination situations, especially with new laws in California about rent control and source of income issues. (Be sure to check on specific laws about income discrimination in your state.) 

Have you ever had a potential tenant that you worried couldn’t make the rent? How can you turn them down? Can you turn them down at all? 

  • Recently a CRES insured property manager in California was faced with this situation:
    He’s placing a tenant and managing a $2000 per month unit
  • There is one section 8 applicant. 
  • Section 8 will pay $1,530.00 of the monthly rent and the tenant brings in $2,300 in income per month on her own. 

The property manager has concerns about the tenant’s ability to pay the $470.00 amount and wants to deny the tenant. He asks, “Is this allowed?” 

Income Discrimination Lawsuits: What a Property Manager Should Do

In California, you cannot discriminate on SOURCE of income of a possible tenant. 

Source of income is a protected class, so you cannot turn someone down based on a legal source of income, which may include social security benefits, child support, pensions, or veteran benefits among others. Also, under California law, you cannot say or advertise that you do not participate in Section 8 or other rental assistance programs. 

A landlord can require that tenants with any kind of rental assistance meet other rental requirements, such as credit and rental history.  And it is legal for a landlord to rent to an income earner that is the most qualified financially. That means if you have competitive potential tenants, you choose to rent to the person with the better income. If there is only one potential tenant, the situation is trickier. 

Rejecting rental applicants is always tricky. Here’s what the CRES Legal advice team recommended in this case:

  • The Property Manager should, in writing, advise the landlord that he cannot deny the potential tenant because of income source. 
  • If the landlord does deny the tenant, it should be done in writing with no mention of income or income source. 

Because there are no other applicants, it is especially difficult to deny the potential tenant. One option is for the landlord to consider a shorter-term lease, for example, 3–6 months, for this tenant. 

Protect yourself as a property manager. Make sure you have a property management agreement stating that the landlord will have the property manager as an additional insured on all landlord’s insurance policies. (Know all the parts of successful property management agreements.) And don’t forget to follow through and make sure the landlord actually adds you as an insured. (What happens when property managers aren’t added to landlord insurance policies?)

Advice from the CRES Legal Team 

If you have a question about income discrimination or new laws and regulations around rentals, wouldn’t it be a relief to know you had access to free legal advice? CRES clients can call the CRES ClaimPrevent® Hotline 7 days a week and receive a response from an experienced attorney within 4 hours or the next business day. Every recommendation is confirmed in writing.

What concerns do you have about income discrimination?

This blog/website is made available by CRES Insurance Services for educational purposes to give you general information and understanding of legal risks and insurance options, not to provide specific legal advice. This blog/website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Claims examples are for illustrative purposes only. Read your policy for a complete description of what is covered and excluded.

Originally Published April 22, 2020

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