Wheeling and Dealing Within the Confines of the Fair Housing Act
by Charles Brown

Driving around Austin, I notice that almost every apartment community I pass has an advertising banner that promotes some sort of "special" to attract tenants. There is nothing wrong with offering these specials such as "First Month Free" or "No Move-in Costs." However, if not done properly, offering specials could create a risk of a discrimination claim under the Fair Housing Act.

The Fair Housing Act says that you cannot discriminate against people in the "protected classes." Under the Fair Housing Act, race, color, religion, national origin, sex, familial status or handicap are the "protected classes."

So how could offering specials be a problem under the Fair Housing Act? For example, if your staff does not offer the same specials to all leasing prospects, this could be viewed as unlawful discrimination, particularly if the prospect that was not offered a special is in a protected class. If one of your leasing agents was offering different terms than your other leasing agents, this could lead to a discrimination claim by the people who were offered different terms. The Fair Housing act applies not only to whether you accept or reject an application, but it also applies to the offer to rent. In other words, it is unlawful to offer different rental terms to someone because of his or her status in the protected class. For example, you may not offer a person with children a higher rent because you believe the wear and tear on the apartment will be greater.

Inconsistencies in the application and leasing process lend itself to discrimination claims. It is often difficult to explain why one prospect was treated differently than another prospect if you are inconsistent in how you treat prospective tenants. The Fair Housing Act does not require you to treat all prospective tenants the same. You may treat prospects differently and offer them different specials as long as the reason for doing so is not because of prospect's race, color, religion, national origin, sex, familial status or handicap.

The legal test is whether your decision to offer or not offer a special to someone is because of the applicant's race, color, religion, national origin, sex, familial status or handicap. If your decision is for some other reason, such as their criminal history, credit history or rental history, you are not violating the law. The problem is that if you do not make as good of an offer to rent to a person in a protected class, it may appear that their status in the protected class was the reason for your decision and not because of some lawful reason such as their conduct, credit history or rental history.

Some apartment managers have asked me whether or not it is okay to make changes to their special promotions to "close the deal." For example, if your current promotion is "first month free" and a prospective tenant says he will lease only if you make the first month free and reduce the security deposit by half although the reduction in the security deposit is not part of the special. It is not a violation of the Fair Housing Act if you "make a deal" with this prospect and provide them with some benefit that you are not offering to other prospects as long as the decision to do so is not because of race, color, religion, national origin, sex, familial status or handicap. However, this is not a recommended policy because of the perception that you are discriminating for some unlawful reason.

Suppose that your apartment complex is offering the first month of the lease rent-free. Lilly, a Hispanic woman, comes in your office and asks about available apartments. Lilly tells the leasing agent that she will sign a lease that day if they will give her the first month free and reduce the security deposit by half because she says she is only able to pay half of the security deposit. The leasing agent agrees and Lilly signs a lease.

Later than same day, Brandon, an African-American man comes in and asks a different leasing agent about available apartments and is not offered the same lease terms that Lilly received. The next week, Brandon signs a lease for the first month free but pays a full deposit. When Brandon finds out that Lilly received a better deal than he did, he may be inclined to file a fair housing complaint. Even though the apartment had the right to give a concession to Lilly because the decision was not based on her status in a protected class but was based on valid business reasons (she will sign immediately if the deposit is lowered), you may have difficulty proving that you were not discriminating against Brandon because of race. While making different concessions for different prospects for a valid business reasons may be legal, it may not be a good policy because it may invite discrimination claims.

Here are some guidelines to follow when offering rent specials:

1. Put the terms of all of your rent specials in writing. Give this description of the terms of the special to all leasing prospects.

2. Maintain a current list of what apartments are available for the rent special. Keep this list updated and give this information to all leasing agents and to all leasing prospects.

3. Have a beginning and ending date of the special.

4. Offer the special to all applicants whether they ask for it or not.

5. Give all leasing agents a copy of the terms of the lease specials and keep this information up to date. Avoid having leasing agents offering different lease concessions.

6. Be sure your advertisements are consistent with the terms of the rent special. Do not advertise anything you are not able to provide.

7. Avoid paying referral fees, leasing fees or other compensation unless the payment is to a licensed real estate agent. Some apartments offer cash rewards to their residents if the resident refers someone to the leasing agent and the referral signs as lease. Unless the referring tenant is a licensed agent, the referring tenant may be violating the Real Estate License Act by accepting a "commission" without being a licensed agent. While it is not a violation by the apartment complex to pay the referral fee or commission to a non-licensed person, it is not a good idea to participate in this type of transaction. Essentially, your offer to pay a referral fee may be perceived as an invitation for your tenants to violate the law.

8. Negotiate terms of a lease special with caution. If you allow negotiation of the terms of a rent special, adopt a written policy for negotiating variations of the rent special. For example, the policy may be that variations in leasing specials will be allowed only for a valid business reason and only after the manager has approved the variation. The business reason for allowing a variation in a special should be well documented. In the example above, the leasing agent should document in the file that Lilly was allowed to pay a reduced security deposit because she agreed to sign a lease immediately and that she asked for the reduction in the security deposit because she was unable to pay the full deposit.

The same questions arise in lease renewals. You have the right to refuse to renew a tenant's lease unless it is in retaliation for a tenant exercising their rights under the lease. You also have the right to offer specials for renewing a lease to some tenants and not others provided that the decision about who to offer the special to has nothing to do with the tenant's race, color, religion, national origin, sex, familial status or handicap. However, you would have a difficult time proving that the reason for not offering the special on the renewal was based on some legal reason and not an illegal one, particularly if the tenant is in the protected class. To avoid inviting a fair housing claim, offer the same renewal special to all renewing tenants.

Bio:

Charles Brown is an attorney who invests in real estate in the Austin, Texas area. He is Board Certified in Residential and Commercial Real Estate Law by the Texas Board of Legal Specialization. He can be reached at 512-476-8942.