By Robert L. Cain
The Supreme Court ruled this month, June 2105, clarifying the disparate impact section of the Fair Housing Act. It is not part of the actual text of the Fair Housing Act, but is a rule added by HUD because it turns out there was an unintended consequence of the wording of the Fair Housing Act.
The Supreme Court ruling had nothing to do with landlords as far as fair housing goes, but with zoning practices of municipalities and counties. Even so, now is a good time to look at disparate impact as it affects and applies to landlords.
Landlords mostly know that it is illegal to discriminate against tenants because of a tenant’s membership in a protected class. For example, we can’t refuse to grant reasonable accommodation to a disabled tenant for property modifications to accommodate the tenant’s disability. We also may not illegally discriminate against a tenant because of his or her race, religion, national origin, familial status, disability, and in some places, sexual orientation and source of income. Disparate impact is a third form of discrimination and much more difficult to understand. In fact, a landlord may not realize he or she has broken the law until HUD enforcers kick down the door.
Disparate impact means that a rule or rental requirement has a “discriminatory effect” on some protected class or other. It is when rental rule or requirement seems to be neutral but disproportionately affects a protected class. The best way to explain it is with this example where the landlord actually won, but with a Pyrrhic Victory.
The Mountain Side Mobile Home park in Jefferson County, Colorado, which had 229 mobile home lots, had an occupancy policy of no more than three people per mobile home. The reason was because the sewer system could not accommodate more than three people per unit plus occasional guests in the units. In addition, because the units were so close together, more than three people per unit had a negative effect on the quality of life in the park.
In September 1991, Jacqueline VanLoozenoord, her three children, and her “roommate and companion,” Michael Brace, moved into one of the mobile homes. They had purchased the home in place. Neither VanLoozenoord nor Brace submitted an application for tenancy before they moved in.
Shortly after the U-Haul was emptied, the park manager asked Brace how many residents were in the home. Brace said there were five, ignorant of the occupancy requirements because the seller had never disclosed them. The manager served the tenants with a notice to vacate.
The couple contacted HUD, which filed a complaint that was heard before an administrative judge, claiming disparate impact on families with children. Administrative judges are who hear the first go around on Fair Housing cases. Hired by HUD, they act as judge and jury, and are supposedly independent of the agency that hired them, even though they depend on the agency for their work.
In the end, Mountain Side Mobile Home park came out the victor, albeit after the case was appealed to the 10th Circuit Court, simply because they could show a legitimate business reason for their three-person rule, the capacity of the sewer system and the quality of life in the park. 56 F. 3d 1243 (10th Cir. 1995)
The park managers had no idea they might have fallen afoul of the Fair Housing Act when they instituted the policy. In fact, they had done everything right (which probably helped save them) because they conducted a survey of park residents and got advice from their attorneys who advised that the park hire an independent expert to evaluate the legitimacy of the policy. QCI Development Services did the study, without being told any information about the park’s occupancy policy, and came to the conclusion that because of the park’s water and sewer system and size of the lots, recreational facilities and parking space, that the park should limit occupancy to three people per unit as the “absolute maximum.”
The point for landlords here, other than that most don’t have the financial wherewithal to fight a complaint to the US Circuit Court, is that every rental policy and rule needs to be looked at with a “discriminating eye” to see if it might conceivably have a “disparate impact” on prospective and current tenants.
Here are questions to answer that will help in the decision as to the degree of “disparate impact” policies may have.
What is the business reason for the policy?
Are there verifiable historical data for it?
An example would be data that show one specific group defaulting more than other tenants as a reason for higher deposits on poor credit scores. Anecdotal data don’t make the grade. Speculation doesn’t make the grade. “Common sense” is useless. It must be figures obtained from a reliable source. What is a reliable source? That may be something for the courts to decide, too. Figure though, that data from the US, state, and local government qualify as credible and reliable, as would data from credit scoring companies.
Can the objective of that policy be accomplished or served using another, less “adverse” policy?
If you have a policy that is at all subject to question as to its “disparate impact” on a protected class, get the data in order. Then call your lawyer and run it by him or her. If he or she agrees, get that opinion in writing.
Your own policies can have an unintended consequence on business simply because of failing to ask the simple question of how someone might possibly, in the tiniest cell of that person’s brain, be offended and construe that policy as having a disparate impact on a protected class even though the policy looks perfectly neutral on its face. You can break the law without ever knowing you did or intending to.