Q: I'm a property owner. As we all know, the rental market in many areas of the country is hot right now. I want to be sure I'm maximizing the return on my investment by getting whatever rental amount the market can support. To that end, I want to advertise one of my rental properties as "$2,500/mo., or best offer." Just like home sales, I want to make space for a bidding war on my rental property, so I can get as much as possible in rental income. Should I be worried about any fair housing liability here?
A: Though there is no black-and-white answer to this question, having a policy of choosing the tenant willing to pay the most money might present a problem under the fair housing laws. While landlords can usually charge as much rent for an apartment as prospective tenants are willing to pay, they must still choose tenants using criteria that are not discriminatory. Fair housing agencies tend to look with a careful eye at three kinds of tenant selection criteria: (1) those that are deliberately discriminatory, such as renting only to tenants that do not have children; (2) those based on subjective considerations, such as renting to someone you just "felt more comfortable with" or who "seemed nicest;" and (3) those that have the effect of discriminating against members of a protected group, such as a policy of not renting one-bedroom apartments to more than two people, a policy that may well have the effect of discriminating against families with children. This third type of case depends upon complex statistical analysis of the impact of a policy on groups protected under the law.
In this case, having a rental policy of renting to the tenant who offers to pay the most rent does not deliberately discriminate against tenants in a protected group since tenants with less money are not a protected group under the law. Nor is choosing a tenant based on who makes the best offer constitute a subjective selection criteria. Rather it is based on an objective offer to pay a certain amount of rent. However, because income can be statistically linked with some protected groups, including race, gender and disability, it is possible that a policy of renting to the highest bidder might have the effect of discriminating against one or more of these protected groups. Such a case is heavily dependent upon demographic and statistical analysis, however, and most likely will be difficult to prove.
That aside, however, the tenant willing to pay the most rent is not necessarily the best tenant to have, if that tenant has been irresponsible in the past. The prospective tenant's credit history and rental history are just as important as the ability to pay rent.
This article appeared in print in the Fall Real Estate 2015 publication.