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Community Associations and Tenants | Part 2 – Background Checks of Tenants

July 31, 2011 Posted in Community Association Law

This is the second of 4 posts concerning tenant issues within community associations. In Part 1, I explained why a prohibition on tenants is either impermissible or highly unlikely. Here in Part 2, I will explain the next common question after prohibition: May an association require credit checks or background checks of potential tenants?

It is certainly understandable for a Board to want to ensure that tenants who come to a community are of good quality. Many responsible landlords utilize background and credit checks for their tenants. But an association requiring background and credit checks by owners who rent their unit or home or requiring a certain level of creditworthiness is a departure from community association industry standards.

Simply put, an association’s legitimate interests do not extend to a landlord’s relationship with its tenant. The exception is to make sure that the tenant abides by the rules and restrictions of the Association. Anything beyond ensuring that the association’s restrictions and rules are complied with could be deemed invasive to both the owners and tenants.

From the owner’s point of view, the association does not have an interest in the creditworthiness of tenants. Thus, if an association required a higher level of creditworthiness than the owner would have required, the association could create liability for itself for the loss of income to the owner. There is no known statistical correlation between people who do not pay their rent with people who do not follow the rules. And people who do not follow the association’s rules may very well be paying their rent.

From the tenant’s perspective, if the association required an extraordinary level of creditworthiness or certain background requirements, then the association could find itself with equal protection and/or fair housing liability issues.

Establishing rules outside an association’s legitimate interests causes speculation and concern as to whether the association is actually trying to prevent protected groups from moving to the community, such as the poor or certain ethnic or religious groups. Courts and the legislature would be wary of associations taking too great an interest in the private affairs of its owners. If the association were challenged, a court could deem the requirement of a credit or background check as beyond the scope of the Board’s authority, or as “not reasonable” with the “business judgment rule” that generally protects Board decisions, and strike it down.

Moreover, if the association collected credit and background information, a responsibility would be created and liability assumed for the association to protect this private information.

For more information, please contact Griffin Alexander, P.C. at (973) 366-1188.

DISCLAIMER - This posting is intended to provide general information and is not intended as specific legal advice or to establish an attorney-client relationship.

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