California is not known as a landlord-friendly state, and a few new laws are adding to that reputation. In addition to statewide rent control that caps rent increases and makes it difficult to evict bad tenants, at least two cities in the San Francisco Bay Area have completely outlawed the use of criminal background checks to screen tenants. These “fair chance” housing laws are designed to prevent homelessness among the formerly incarcerated, but are they fair to landlords?
Ban on Criminal Background Checks in Oakland, Berkeley
Oakland was the first California city to adopt an across-the-board ban on criminal background checks. It was approved in January and impacts almost all the rentals in the city. (1) Berkeley also adopted a similar measure in March, (2) and there’s a push among housing advocates to get more Bay Area cities to follow suit.
There are exceptions to policies in Oakland and Berkeley, but not many. Landlords in an owner-occupied duplex or triplex can run a criminal background check when they are renting another unit in the same building. People looking for a roommate are also allowed to check on a person’s criminal record. Landlords may also refuse to rent to registered sexual offenders, or to affordable housing applicants who’ve been convicted of manufacturing meth. Landlords who violate the rules face fines, and potential criminal charges as well.
“Fair Chance” Laws in Other Cities
The Bay Area cities of San Francisco and Richmond also have fair chance housing laws, but they only apply to affordable or government-subsidized housing. You’ll also find some version of these laws in Detroit, Chicago, Minneapolis, and others. But, it was Seattle that led the nation with the most stringent fair chance rule, similar to the ones now approved in Oakland and Berkeley.
Landlords in Seattle have mounted a legal challenge against the law. They lost their case in the Washington state Supreme Court, but have appealed it to the U.S. Supreme Court. That case is still pending, although the high court recently rejected a challenge to Seattle’s first-come, first-served law for rental applications.
The laws in Detroit, Chicago, and Minneapolis are not as hard core. They may require that background checks are done after an initial screening, or are limited to more recent convictions or types of crimes.
If you’re curious as to what a less strict policy might look like, the Minneapolis Fair Chance Ordinance offers a good example. Applicants who’ve committed first-degree murder, arson, robbery, criminal sexual conduct, or kidnapping are acceptable if the crimes happened more than 10 years prior to the application. For those who’ve committed lesser felonies, they are good to go at seven years. If they’ve committed misdemeanors or previous evictions, they will be qualified to rent in three years. The landlord can also do an “individualized assessment” at his or her own expense, to prove that an applicant that falls within these guidelines, should be rejected. That ordinance goes into effect this June.
Increased Liability Risk for Landlords
Civil rights groups and housing advocates say formerly incarcerated individuals have already paid for their crimes, and deserve a second chance without bias. They say these rules reduce the possibility that these individuals will become homeless. The City of Oakland website says that 73% of the people who live in homeless encampments were previously incarcerated. (3) But these bans can also increase the risk for landlords who may be ultimately liable for whatever happens on their rental properties.
This is a touchy subject because many people with a criminal record would make perfectly good tenants. And it’s true that they’ve already paid for their crimes. But landlords also need to manage their risk, and these ordinances deprive landlords of information they could use to make an informed decision.
As reported by Corporate Direct, these kinds of laws don’t change a landlord’s responsibility to protect neighbors from the criminal acts of their tenants. (4) If a tenant commits a crime associated with the property, landlords are often blamed, in court. Neighbors upset with the situation could sue a landlord for allowing a situation that becomes a public nuisance or threatens public safety.
Remote Real Estate Investing
Corporate Direct helps entrepreneurs and investors maximize their financial potential while protecting their assets. It doesn’t have a lot of good things to say about owning rental property in Oakland, except that landlords should be sure to put their rentals into an LLC. That will protect the owner against any personal liability. It also suggests that Oakland landlords sell their properties and invest somewhere else. It doesn’t recommend buying property in other Bay Area cities because many are considering similar legislation. As I mentioned, Berkeley has already passed a fair chance rule, so that’s a done deal.
What Corporate Direct is suggesting is that landlords divest of their Bay Area properties and invest far, far away. There are many good single-family rental markets outside of California. And that doesn’t mean you have to give up your own California home. Remote real estate investing is easier now than it’s ever been, even during this pandemic. We have plenty of investors in our network who’ve selected and closed on properties without ever seeing them in person.
I’ve always recommended in-person tours for people who have never visited our markets, but in times like these, it may be wiser to depend on the research you can do on your computer. You can get a lot of information at our website. It’s free to join and get access to our research on the best rental markets for affordable, cash-flowing rentals with good property management.