A few days ago, I participated in a discussion around security deposits. The issue at hand was whether a landlord (property manager) could increase a security deposit for a single tenant, and not run afoul of fair housing laws. I maintain that YES, in Nevada, you can charge different deposit amounts for different tenants.
First, let’s take a look at the applicable prohibitions under the Federal Fair Housing Act. The Act prohibits us from treating renters differently, which would include different security deposit terms, based on a renter’s membership in a protected class. For clarification, on a federal level, the protected classes we’re talking about are race, color, religion, national origin, gender, familial status, and disability. In Nevada, our state has added 3 more protections: ancestry, sexual orientation, and gender identity/gender expression. To reiterate, the law prohibits us from treating renters differently because of their membership in a protected class. In other words, I would be violating fair housing law if I were to increase a family’s security deposit because they have children.
There is nothing in federal or Nevada state law that precludes our taking reasonable measures to offset our risks in renting property. The key is in evaluating rental prospects in an objective (measurable) way.
Let’s look at some of the things we can objectively evaluate…
Credit is first to come to mind, especially if we utilize a FICO score for credit evaluation. It’s measurable; it’s objective; and it has absolutely nothing to do with someone’s membership in any protected class under federal or state fair housing law. The lower someone’s credit score, the higher the risk may be in renting to him. A low credit score, then, may justify a higher security deposit.
Income is another factor we can objectively evaluate. If the rent on a single family home is $1,500/month, someone who makes $3,000/month is going to be a higher risk than someone who makes $4,000/month, right? Rent-to-income ratio is something we can measure objectively, and something that may justify an increased security deposit.
What about pets?
This is an area in which most property managers have no problem increasing deposits. Pets (not “assistance animals”) are not protected under federal or state fair housing laws, and are widely perceived to increase a landlord’s risk in renting to a tenant. If a property manager allows pets in a rental property, it’s not uncommon for the manager to charge either a separate pet deposit, or an increased security deposit, because of the pet.
What else can we objectively measure? How about rent payment history, eviction history, criminal background, and employment history? These are all things that can be objectively evaluated, and used for the purpose of determining risk. And, the higher the risk in renting to someone, the greater the justification for a higher security deposit.
In Nevada, the maximum security deposit, including “last month’s rent,” cleaning charges, and other deposits collected at the beginning of tenancy is a sum of three times the periodic rent. In other words, if the rent is $1,500/month, the maximum security deposit you can collect is $4,500. This gives the property manager a good deal of leeway in determining appropriate deposits, on a case by case basis. As long as the manager is objectively evaluating risk to determine the amount of the security deposit, and the perception of risk is in no way related to a renter’s membership in a protected class under fair housing laws, it is perfectly justifiable to vary security deposit amounts between tenants.
Do you agree or disagree? Please share your thoughts and experiences by leaving a comment on this post. Thanks!