The Fair Chance Housing Ordinance is a new law in Oakland that affects tenant selection and criminal background checks. Steve Rosenberg, VP of Investor Education at Mynd Property Management and Giles Imrie, VP of Corporate Counsel at Mynd are discussing what this means for local landlords and Oakland real estate investors.
The Mynd team recently released a video and a blog that explained what the Oakland Fair Chance Housing Ordinance is, and what it means for landlords and real estate investors in Oakland. While it only pertains to the city of Oakland right now, we expect that it will lead to other cities adopting similar legislation.
The new Oakland law essentially prevents landlords and property managers from running criminal background checks on applicants during the screening process. There are a few very specific reasons that you or your property may be exempt, but most rental homes in Oakland will require landlords to make placement decisions without running a criminal background check during the screening process.
Our focus on today’s blog is the ramifications of this law, and the potential legal consequences Oakland rental property owners can face if they violate this law or suggest that they will only rent to people without a criminal history.
Implications and Penalties with the Fair Chance Housing Ordinance
The Fair Chance Housing Ordinance was unanimously approved by Oakland’s city council and is expected to go into effect early in February. Generally, it means you can no longer perform criminal background checks on potential tenants when you’re conducting your screening process. As we stated in our last blog, you can still check the federal lifetime sex offender registry, but you can only do so after you’ve conditionally approved a tenant.
Landlords have six months to comply with the new law. If you make an unintentional mistake or you purposely break this law by conducting a background check, you will face some pretty expensive penalties. You can be held accountable for advertising that isn’t compliant as well as a screening process or application that doesn’t meet the requirements of this law.
The city of Oakland will impose a $1,000 penalty for each violation. In addition to that, the law affords any applicant the right to a private civil action. Monetary damages can be awarded based on whatever is more: three times the actual damage including emotional distress or three times the market rent of the property you’re leasing.
Emotional distress is a big one. Tenants can claim emotional harm if you denied their application based on criminal history, or they had to worry that they were going to be subject to a background check.
The equivalent of a month’s rent with also add up when it’s applied in triplicate. If you’re renting out a property for $2,000 or $3,000 a month and an applicant brings this complaint against you successfully, you’ll be paying $6,000 to $9,000 in statutory damages on top of the $1,000 imposed by the city. You’ll also be accountable for attorney’s fees and costs.
This will attract a lot of landlord/tenant attorneys who will be looking to sniff out any minor violation in your process. You’ll get a demand letter asking for damages and attorney fees just to make the claim go away. We expect to see a lot of landlords and property owners receiving shakedown letters from attorneys who sense an opportunity to make a case.
Note that civil damages will require payment that meets the greater of the two – emotional distress or three times the rent. So, if you’re found to have violated this law, you’ll pay the city’s penalty and then you’ll pay three times of either the actual damages including emotional distress, which could be a pretty loose number, or three times of the listed rent. If you happen to have a low-ball rent, you’ll be paying three times the amount of HUD’s fair market rent.
How to Avoid Oakland Fair Chance Housing Claims
If you own a rental property in Oakland and it’s about to be vacant, you’ll want to make sure you’re prepared for what this new law means.
First, make sure your advertising material is free from any indication that you’ll be screening for criminal backgrounds. Your application portal needs to be updated, or the form you use if you’re collecting paper applications.
Not only should you remove any reference to criminal backgrounds being a factor, you should include a disclosure that you WILL NOT make this a factor. On the top of every application, write something that says you will no longer require or conduct criminal background checks for properties in the city of Oakland in accordance with the Fair Chance Housing Ordinance. Disclosing you’re not going to do it can protect you and your process.
Make sure no one can look at your website and think you’re going to make criminal backgrounds a factor. Then, make sure the process is compliant. You may be renting out properties in other jurisdictions. It’s critical that you keep your screening of Oakland tenants separate from the screening of other tenants. You may still be doing background checks for properties you’re renting out in other cities. That’s fine if they’re outside of Oakland. But in Oakland, you won’t run those checks, so set up your process to be compliant.
This is relevant to Oakland right now, but we’ll be surprised if it remains the only city in California to have such a law on the books. The Bay area will likely begin to adopt similar laws. There’s a housing challenge in our region, and certain agencies are proposing dramatic things to resolve it. You don’t want to set yourself up for a lawsuit or a claim. It’s an excellent time to work with an Oakland property management company. Then, you won’t have to worry about the risk and the liability that comes with new housing laws like this.