As many as 100 million U.S. adults – or nearly one-third of the population – have a criminal record. The U.S. Department of Housing and Urban Development (HUD) recently issued a warning and compelling statistics that reveal that certain protected classes are being disproportionately impacted by their criminal history.
The Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. 42 U.S.C. §3601 et seq.
Although criminals are not a protected class under the Fair Housing Act, criminal background-based restrictions may violate the Act if, without justification, the restrictions negatively impact one race more than others (known as “discriminatory effects liability”). In addition, where two or more applicants have similar criminal backgrounds, the Act is violated if the housing provider prefers one race over another (known as “disparate treatment liability”).
HUD warns that a housing provider violates the Fair Housing Act if the provider’s policy or practice has an unjustified discriminatory effect, even if the provider had no intent to discriminate. This is noteworthy because under this standard, an ostensibly neutral policy or practice that has a discriminatory effect violates the Act if it is not supported by a legally sufficient justification. And according to the statistics quoted by HUD, housing decisions based on criminal records conclusively result in a discriminatory effect on certain races of people.
HUD does, however, mention the following safe harbor: the policy or practice may be lawful notwithstanding its discriminatory effect as long as the decision is supported by a legally sufficient justification. For example, safety. Some landlords and property managers site the need of protecting other residents and their property as legal grounds for denying applicants based on their criminal background. For sure, ensuring resident safety and protecting property are among the fundamental responsibilities of a housing provider, and courts may consider such interests to be both substantial and legitimate, assuming they are the actual reasons for the policy or practice.
But a word to the wise: denial of housing opportunities based on past history of criminal arrests (without proof of conviction) will not likely satisfy this test. Indeed, according to the U.S. Supreme Court, “[t]he mere fact that a man has been arrested has very little, if any, probative value in showing that he has engaged in any misconduct. An arrest shows nothing more than someone probably suspected the person apprehended of an offense.” Schware v. Bd of Bar Examiners, 353 U.S. 232, 241 (1957); see also United States v. Berry, 553 F.3d 273, 282 (3d Cir. 2009) (“[A] bare arrest record – without more – does not justify an assumption that a defendant has committed other crimes and it therefore cannot support increasing his/her sentence in the absence of adequate proof of criminal activity.”); United States v. Zapete-Garcia, 447 F.3d 57, 60 (1st Cir. 2006) (“[A] mere arrest, especially a lone arrest, is not evidence that the person arrested actually committed any criminal conduct.”). Thus, a housing provider who denies housing to persons on the basis of arrests alone (without proof of conviction) cannot prove that the exclusion actually assists in protecting resident safety and/or property.
On the other hand, denial of a housing-related opportunity based a criminal conviction is likely okay. But the housing provider must still prove that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. A blanket ban on anyone with a conviction record – no matter when the conviction occurred, regardless of the crime, or what the person has done since then – will be unlawful.
According to HUD, a blanket ban against anyone with a criminal record results in discrimination against certain races of people because of the disparities in the U.S. criminal justice system. As a result, the housing policy should differentiate between various crimes and the date of the convictions. For example:  convicted sex offenders need not apply (regardless of the date of conviction);  convicted felons guilty of violent crimes, kidnapping, terrorism, drug manufacturing, need not apply (regardless of date of conviction);  conviction of any drug-related offenses involving possession only, or alcohol-related offenses where no one was injured or killed, must be at least 2 years old.
To summarize, the Fair Housing Act does not prohibit housing providers from considering an applicant’s criminal background when making housing-related decision. But according to HUD’s recent warning, the Act does prohibit housing-related decisions based solely on the applicant’s criminal history. And the Act may prohibit housing-related decisions based solely on the applicant’s conviction record without evidence of a legally sufficiency justification such as safety concerns. As a result, housing providers should immediately implement thoughtful application policies and practices that consider the type of crime, evidence of a conviction, the date of the conviction, and the person’s behavior since the conviction.
If you or someone you know has questions regarding multi-family housing, landlord tenant issues, or other real estate matter, please call or email today.
Christopher J. Charles is the founder and Managing Partner of Provident Law®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He is also an Arbitrator and Mediator for the AAR regarding real estate disputes; and he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at firstname.lastname@example.org or at 480-388-3343.
Keeping true to his goal for Arizona to become to the sharing economy of what “Texas is to oil and what Silicon Valley used to be to the tech industry,” Governor Ducey signed SB1350 paving the way for vacation rentals in Arizona. Prior to SB1350, cities such as Scottsdale, Phoenix, and Sedona opposed residential rentals for less than thirty days.
Now state law prevents cities and counties from banning short-term rentals and establishes uniform tax laws for vacation rentals.
Click here, to review an overview of the new law in Arizona. This new law protecting vacation rentals in Arizona is the first of its kind in the nation. Airbnb and VRBO are now lobbying across the country for similar laws in other states.
Although SB1350 prevents cities and counties from restricting vacation rentals, in limited situations HOAs may restrict short term rentals pursuant to CC&Rs.
For more information regarding vacation rentals, call or email Mr. Charles today, to schedule a consultation.
Due in part to the convenience of our new “Sharing Economy” through websites like VRBO and airbnb, vacation rentals are booming. Short-term rentals, however, are under attack by certain cities and HOAs. Some cities such as Sedona, Arizona and Coronado, California, have passed legislation to expressly prohibit rentals for less than 30 days. And other cities including Scottsdale and Phoenix have recently taken the controversial position that although their codes and zoning ordinances do not expressly prohibit vacation rentals, any rentals for less than 30 days in residential districts are illegal as “commercial use.”
In an effort to clarify owners’ property rights in Arizona, the State Senate recently voted to pass SB1350 sponsored by Senator Debbie Lesko. SB1350 prevents cities from restricting vacation rentals and clarifies taxation issues. The bill is currently pending before the House of Representatives.
Governor Doug Ducey endorsed vacation rentals in his State of the State address: “Arizona should be to the Sharing Economy what Texas is to oil and what Silicon Valley used to be to the tech industry.”
If you or someone you know has questions regarding vacation rentals, please call our office today to schedule a consultation.
Please see below for more information on vacation rentals:
If you own a property you know that getting the mortgage is only the beginning. There is also real property tax, state tax and tax liens, just to name a few. As a property owner it’s always good to keep yourself informed.
In this video Arizona State Bar Certified Real Estate Specialist, Attorney Christopher J. Charles provides some useful information and explains the details about Arizona tax liens.
What is a short-term lease? What does the Super Bowl have to do with short-term leases? Watch this video to listen to Arizona State Bar Certified Real Estate Specialist, Attorney Christopher Charles, explain the “ins and outs” of short-term leases in Arizona.
On December 17, 2015 Provident Law hosted an Open House and Christmas Party to celebrate our grand opening. Provident Law’s Managing Partner, Christopher Charles, shares words of gratitude and appreciation to the guests in attendance.
As discussed in our recent post regarding pre-possession agreements, key provisions of the Dodd Frank Act (“Dodd Frank”) took effect in 2015. Dodd Frank aims to revamp the United States regulatory system, especially in regard to mortgage lending. To that end, Dodd Frank created material changes to the residential real estate mortgage closing process. For example, the Truth in Lending and Good Faith Estimate document has been replaced with the new Loan Estate (“LE”) and the HUD-1 Settlement Statement has been replaced with the Closing Disclosure (“CD”). The mortgage industry has spent billions of dollars to adapt to these changes. For instance, Quicken Loans reportedly hired 350 employees for 18 months just to implement the Dodd Frank changes.
On average, these new changes are adding an extra week to the beginning of the closing process. In addition, the new changes are adding an extra week on the tail end of the closing. As a result, whereas for recent history most residential closings typically closed in about 30 days, many closings after Dodd Frank are now taking around 45 days.
Due to the longer and less predictable closing periods, buyers and sellers are encountering occupancy challenges and requesting pre or post-possession agreements until their pending transaction can close escrow. (This column previously addressed pre-possession agreements – the situation where the buyer requests that the seller allow the buyer to take possession prior to the close of escrow. We not turn our attention to post-possession agreements – where the seller asks the buyer for permission to remain in the home for a short period after the close of escrow.)
Post-possession agreements present unique and interesting legal issues. They also present substantial risk to the buyer. In fact, Commissioner’s Rule R4-28-1101(k) warns: “A salesperson or broker shall recommend to a client that the client seek appropriate counsel from insurance, legal, tax, and accounting professionals regarding the risks of pre-possession or post-possession of a property.”
Arizona’s statute of frauds requires that any agreement for the sale or interest in real estate must be in writing. A.R.S. §44-101(6). But one key exception to the rule concerns a lease for less than one year. So technically a verbal post-possession agreement is legal. Under no circumstance, however, should a buyer (or his agent) ever agree to a verbal post-possession agreement.
Although post-possession agreements create certain risks for the buyer, those risks may be minimized with the proper insurance policies and with a thoughtful and thorough post-closing occupancy agreement. Also, the buyer can request an “escrow holdback” to protect his or her interests. For example, the buyer can request that the escrow company withhold $50,000 from the purchase price in escrow which shall not be released to the seller until:  the seller peacefully surrenders possession of the premises by the agreed-upon date;  the seller transfers possession in the same condition as it was during the final walk-through inspection;  the seller pays any agreed upon rental charges in the post-occupancy closing agreement; and  any other reasonable terms the parties agree to. The escrow hold back strategy provides the buyer with sufficient protection to essentially offset the risks associated with post-possession agreements.
Below are common pitfalls common to post-possession agreements (many of these risks are also common to pre-possession agreements):
- Risk of Loss – who has the risk of loss during the post-closing occupancy period?
- Insurance – does the seller have valid insurance coverage during the post-closing occupancy period? Does the buyer have valid insurance coverage?
- Repairs and Maintenance – who is responsible for repairs and maintenance?
- Occupancy Rights – who has the right to occupy the property (the buyer should require the seller to expressly identify the names of everyone who will be occupying the property and consider obtaining background check on all occupants)
- Rental Amount – what is fair rent for the term?
- Security Deposit – what is a fair security deposit? Is the security deposit limited to 1.5 times the monthly rent pursuant to the Arizona Residential Landlord Tenant Act? Probably not (see below).
- Buyer’s Remedies– the buyer should expressly identify what remedies are available if the seller fails to move out when agreed, including liquidated damages paid from the escrow holdback discussed above. Also, the buyer should request that the seller agree to immediately voluntarily surrender possession and that the seller may perform a non-judicial lockout in the event of a breach. To that end, the parties should expressly represent and warrant in the post-possession agreement that the property is not the seller’s residence or domicile and that the parties’ relationship is governed by the Inn Keeper’s Statements and not the Landlord Tenant Act.
If you or someone you know has questions regarding pre or post-possession agreements or any other real estate matter, please call or email today.
Well drafted rental agreements help prevent disputes and protect the owner’s legal interests when disputes do arise – especially in regard to vacation rentals. Thoughtful vacation rental agreements provide owners with important safe guards and protections. For example, without an express vacation rental agreement, many vacation rental relationships will be governed by the state’s Residential Landlord Tenant Act and not the Inn Keeper Statutes. For good reason, owners prefer for the relationship to be governed by the Inn Keeper Statutes. See Vacation Rentals and the Super Bowl, October 15, 2014. Excellent vacation rental agreements also establish appropriate Rules and Regulations to help ensure that the renters are respectful of the neighbors and any CC&Rs.
And so, prudent owners should include a custom vacation rental agreement with any online booking, including online bookings with airbnb. As discussed in the above-referenced October article, any vacation rental agreement should at a minimum expressly state that the parties recognize and agree that the agreement constitutes an “innkeeper relationship” and is exempted from the Landlord Tenant Act. Further, the agreement should expressly state that the owner may perform a non-judicial lockout in the event that the guest breaches the agreement or willfully holds over post conclusion of the rental term. And if the property includes a pool or hot tub, the owner needs to include a separate waiver and release of liability.
Airbnb Allows Owners to Utilize a Custom Vacation Rental Agreement.
Contrary to popular belief, property owners (referred to as “hosts” by airbnb) can require guests to submit to additional terms and conditions prior to booking on the airbnb.com website.
First, as a practical matter, owners should disclose in the “property listing description” that there are additional terms, along with any additional steps needed to execute the contract. Airbnb suggests that hosts simply “copy-and-paste the terms in the message thread” with the guest. Otherwise, owners should consider separately sending a comprehensive agreement that the guest can sign with an electronic signature, via a convenient online service such as DocuSign. This allows owners to strengthen their legal protection while maintaining ease-of-use, which is one hallmark of airbnb.
Owners should utilize a custom vacation rental agreement based upon their particular property, considering that all properties and communities are unique. Avoid stock agreements and one-size-fits-all solutions.
For example: Airbnb does not process taxes. And the municipality in your jurisdiction may impose taxes on certain short-term rentals. For example, the City of Scottsdale assesses a Transient Tax Rate of 5.0%. In that case, in addition to the 1.65% privilege tax on rental of real property, there is a 5.0% transient lodging tax on any hotel, motel, apartment, or individual charging for lodging space to any person for 29 days or less. An owner in that situation should specify in the agreement that such amounts are also included in the rate.
And as another example, airbnb does not collect security deposits. Rather, airbnb has a set of procedures for an owner to make a claim on an airbnb insurance policy if the damage and property is within the scope of the Airbnb Host Guarantee Terms and Conditions. Depending on the nature of your property and the length of the rental, owners should consider collecting a security deposit to minimize the cost of potential property damage — and not exclusively rely on protection through airbnb’s insurance.
Owners can fully address these issues, and many others, in a customized vacation rental agreement. With a bit of planning, a custom agreement will eliminate disagreements before they arise, allowing owners to increase profitability and reduce headaches.
Beware of Property Use Restrictions
Even with the right vacation rental agreement provisions, local ordinances or applicable community covenants, conditions, and restrictions (“CC&Rs”) may restrict short-term rentals. Consequently, before owners market their property for rent to the public on websites like VRBO and airbnb, owners and property managers should consult with a real estate attorney to confirm any legal hurdles in your area.
Websites like VRBO, HomeAway®, onefinestay, TurnKey®, and airbnb are priceless tools for finding interested renters. But owners and property managers who use these websites without requiring renters to submit to additional terms and conditions, unnecessarily expose themselves to risk and liability. With just a few simple steps, owners can incorporate a smart vacation rental agreement into websites like airbnb and prevent disputes from arising, shield owners from liability, and protect their property interests.
If you or someone you know needs help drafting a vacation rental agreement or has questions regarding vacation rentals, please contact us today.