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Fair housing in real life.

The Fair Housing Amendments Act could best be described as an oxymoron. Whereas the Act mandates straightforward equality in rental housing management practices, the property managers that are required to implement these provisions are faced with foggy legislative wording that has yet to be clarified by court decisions or regulatory rulings.

Indeed, managers may not receive a clear-cut statement on the Act's meaning until they are faced with a lawsuit. The cost of those suits, plus the possible costs in penalties and ill-will, are more than most managers can endure.

The following scenarios have been created to show some common problems rental housing managers may face. Most have no answer addressed in the rules and regulations of HUD.

JPM has asked several CPM[R] members and two attorneys to comment on these scenarios. Their responses provide clarification on some of the questions covered by the Act and highlight the complexity of interpreting and implementing fair housing policies. However, the comments are not meant to be construed as legal or investment advice.

Editor's note: It should be noted that representatives from the Department of Housing and Urban Development declined to comment for this article, although they were repeatedly asked to participate.)

Scene, 1:

Everybody Loves Kids

You are the property manager of a lovely, adults-only garden court apartment with extensive waterscaping. Some ponds come right up to the lower unit decks, which have no railings or fences. Many of the residents, both young and old, have expressed the sentiment to your site manager that if "a bunch of kids moves in, we're moving out!"

* What do you train the site managers to tell prospective renters about the ponds?

* What do you tell your client about the concerns of the residents?

* What do you tell the dissatisfied residents?

The attorney's view

The 1988 Amendments added "familial status" to the categories protected under the Fair Housing Act. Housing discrimination is now prohibited against persons under age 18 who live with a parent or legal custodian or the designee of either.

Unlike the provisions protecting the handicapped, however, these sections on familial status impose no affirmative obligations on owners or brokers.

Dissatisfied residents should be told that their concerns are understandable, but that federal law prohibits discrimination against families. At the same time, no statement should be made to residents that their concerns will be accommodated. Such a statement would also be a violation of the Act.

Remind residents that the only "adults-only" properties now permitted are those for the elderly. If the adults-only property in question currently meets one of three requirements for housing for older persons, it could be exempted from familial status provisions of the Act.

These criteria for exemption are housing programs which are participating in a federally financed and approved program for elderly housing, housing which is occupied exclusively by new residents over 62, or housing where at least 80 percent of the units are occupied by at least one resident older than 55 and where amenities and screening requirements clearly demonstrate that the property is intended for older persons.

On the other hand, if the property does not meet these criteria, the manager may still point out the potential dangers posed to children of a young age by the property's ponds. HUD expressly states in the "Preamble" to its implementing regulations that nothing in the regulations is intended to impose any new liability.

The manager should inform prospective residents with children of the dangers associated with the ponds. At the same time, the manager may not exaggerate the drawbacks of the property or tell a prospect that the lower level units are not "suitable" or not available to rent to families with children.

In addition, the manager may implement reasonable rules relating to the facilities. For example, rules could be implemented prohibiting running along the walks adjacent to the ponds.

Hence, the new manager must walk a fine line between honesty concerning the potential risks and the current tenant composition of the property without appearing to "steer" prospective tenants with children away.

Tenants must be informed that children cannot be legally excluded from the community. However, residents may be reminded that the features of the property are particularly conducive to adult living and that by not adding playgrounds or other family-oriented amenities, the property will be less appealing to families with children.

The owner should be told of the tenants' concern, but reminded that discrimination against families with children is not permitted. The owner should also be apprised that the new statute does not require that any changes be made to make a property more accessible to children.

At the same time the presence of conditions which might be seen as dangerous to children and/or other residents could lead to liability in tort. When new categories of tenants are introduced into the property, managers and owners must re-examine their exposure in the tort area, as well as the coverage provided by their insurance.

The manager's view

The manager should immediately communicate the tenants' concerns to the owner. The manager may also consider offering suggestions about the feasibility of converting the property to housing for older residents.

The property's lease documents and insurance coverage should also be reviewed to reduce liability and ensure safety. The property's attorney may wish to draw up a release form for tenants to sign, which should then be appended to the lease. The manager should also discuss costs and advisability of fencing the ponds and possibly providing play equipment located as far away from the ponds as possible.

All tenants, regardless of parental status, should be informed of the danger posed by the ponds and told of any rules restricting access to the pond area. The tenants must also be told that while the management is doing nothing to encourage residents with-children, children must be permitted under the Act.

Scene 2:

Room for One More

The owner of a property with one-, two-, and three-bedroom apartments has never been too concerned about the number of people in any one unit. Thus two couples share a two-bedroom, two-bath unit and a married family with a 10-year-old son lives in a large one bedroom.

A new owner buys the property and decides that the HUD standard for occupancy is too liberal. You send all tenants a notice that you are restricting occupancy as follows: one bedroom, two people maximum; two bedrooms, three people maximum; three bedrooms, four people maximum. After howls of protest, you decide that you will only implement this policy for new residents.

* Can you limit the policy to new residents only?

* Are your more stringent guidelines legally acceptable?

The attorney's view

The HUD comments concerning the Fair Housing Act state that there is no intent to develop a national occupancy code in the preparation of the regulations. Nor does the Act "limit the applicability of any reasonable local, state, or federal restrictions regarding the maximum number of occupants permitted to occupy a dwelling." However, regulations on occupancy will be carefully scrutinized for fairness as to whether or not they operate unreasonably to exclude families with children.

Thus the question would be whether adopting any or all of these proposals would violate the Act's prohibition against using different qualifications for renting because of familial status.

Obviously, permitting a continuing tenant to rent a one-bedroom apartment for a family of three would be "different" from prohibiting a new applicant with identical familial status from renting an identical apartment on the floor below. Therefore, the new policy must be applied to all tenants equally, including renewals of existing tenants if current lease provisions permit this. Of course, until renewal, the provisions of the old lease and old occupancy standards must be followed.

The new policy must also be included in all new lease documents. Otherwise, the manager will not be able to legally enforce the occupancy standard.

At the same time, the owner should consider returning to the more permissive HUD standards. While the HUD comments on the Fair Housing Act permit owners and managers to develop "reasonable" occupancy requirements "in appropriate circumstances," what constitutes "reasonable" and "appropriate circumstances" has not been answered. Thus, even if new occupancy policies are applied evenly, they may produce unintended obstacles to family tenancies, which would expose the owner to challenges of discrimination.

The manager's view

First and foremost, try to talk the client out of this decision. You risk losing stable tenants and endangering occupancy. Review policies at other properties and general conditions to see if the new guidelines correspond.

If the owner insists, advise the tenants of the new owner's decision and explain that all tenants will be subject to these new occupancy requirements upon lease renewal. Start a major marketing effort.

Scene 3:

The First Stop

Is the Hardest

A prospective resident, who is confined to a wheelchair, tells the manager that he is particularly interested in the corner, two-bedroom apartment.

There are three steps to the entryway of this unit, but essentially it is a ground-floor unit. The prospect agrees to make interior modifications, including lowering countertops ($3,000), widening doors ($900), and lowering the thermostats ($100). The prospect asks that the owner spend $950 to construct a 10-degree sloping ramp from the parking lot to the apartment. He points out that he would not be able to remove the ramp when he leaves.

* This unit normally rents for $600. What can you charge, assuming you pay for the ramp?

* Your standard security deposit is $200. Should you charge more?

* You usually offer six-month leases. Should you offer him the five-year lease he asked for?

* Just as you start the modifications, one of your handicapped units becomes vacant; if you recommend it to him, are you "steering"?

The attorney's view

The 1988 Amendments add handicapped persons to the list of those protected from discrimination in housing. The Act requires that owners allow handicapped persons to make certain modifications to the premises at their own expense.

If these changes would interfere with the use of the premises in the future by a non-handicapped tenant, the owner may require the tenant to restore the premises. Thus, a handicapped tenant may be required to return the kitchen cabinets to standard heights, but not to reframe widened doors, which do not interfere with normal use.

HUD regulations prohibit increased security deposits for handicapped-modified units, even if modifications are made to the unit. However, the owner may require a deposit for restoration funds. The owner may also require that the tenant place the funds needed for these restorations in an interest-bearing escrow account (with the interest benefiting the tenant). The fund requirements must be "reasonable" and reflect the costs of restoration.

The property manager must make a determination of reasonableness based on factors such as the extent of the modifications, the credit history of the tenant, and other information that bears on the risk the manager runs that the unit will not be properly restored. The property manager must be careful not to assume that a handicapped tenant is less credit worthy than a person without a handicap.

Regulations do prohibit discrimination against the handicapped in the form of additional rent. Therefore, the owner is advised to require the tenant to pay for the exterior ramp, but to keep the unit rent the same as for other tenants. However, the owner might agree to pay for the ramp and negotiate an additional monthly payment, which could be added to the rent, as a reimbursement for this cost.

The manager is not required to agree to a long-term lease at a fixed rent for a handicapped unit. However, he or she might be required to agree to an extended lease at some fairly agreed escalation (perhaps the CPI), based on the tenant's substantial costs in making modifications. Five years is probably longer than the tenant is entitled to, but six months seems to be prohibitive.

A refusal to vary the lease term could be seen as a violation that the owner make "reasonable" concessions in rules "necessary to make accommodations available to the handicapped." However, if the standard lease term is six months, the manager probably has no obligation to offer a longer term. The Act is not intended to provide the handicapped tenant with rights wholly different from those offered to nonhandicapped tenants.

Finally, directing a prospect to a "handicapped unit" could be steering. The HUD regulations include "assigning" a person to a particular floor of a building because of handicap as part of their example of prohibited steering. It is acceptable to offer the applicant the choice, but no more.

In part, the location and integration of the handicapped unit with the overall property may influence the interpretation of steering. In this case, there seems to be no intent to perpetuate segregated housing or obstruct a handicapped applicant's choice to live in a community. However, if existing handicapped units were concentrated in one wing of a large property, directing the applicant to these units might be considered steering.

The manager's view

As the rental rate for the modified apartment must be the same as for all units, the manager should advise the owner not to pay for the ramp. Only offer to pay for the ramp in a very soft market where you desperately need tenants and are willing to make concessions.

Negotiate an agreement for modifications separately from the lease, using contractor estimates of the cost of restoration as the basis for the amount of deposit.

Negotiating a long-term lease will depend on the business plans of the owner and the conditions of the market. If other exceptions to the six-month lease have been made, they could be used as a basis for determining the offered term. Here again, do not agree to a flat rate unless you are in a very depressed market; otherwise tie rent increases to inflation, the CPI, or some other standard indicator.

Show the handicap-equipped unit to the prospect and point out the significant savings he would realize by renting the already modified unit.

Scene,4:

You're Not Getting Older

You manage a mid-rise building which, although it has no tenant-age restrictions, is 80 percent occupied by residents over age 55. They ask that you not rent to families with children.

* What specific types of facilities must you offer to meet the Act requirements of "significant facilities and services designed to meet the physical and social needs of older persons"?

* How does the recent marriage of an 80-year-old resident and his 32-year-old visiting nurse affect your decision?

The attorney's view

To meet the requirements of the Act and be exempt from its provisions prohibiting discrimination on the basis of "familial status;' you must ensure that your property complies in three main areas.

First, you must be careful to preserve the 80-percent-over-55 occupancy conditions. Note that this 80-percent requirement applies to units, not residents, so the newlyweds are within the parameters of the Act. However, you must observe the prohibitions against excluding or evicting under-55-year-old surviving spouses or relatives.

Second, you must publish and observe policies that demonstrate an intent to provide housing for those over 55, including advertising, strict age verification, and descriptions of the property given to prospective tenants.

Third, the housing must meet one of two conditions to qualify as elderly housing. Either the housing must have significant facilities and services designed to meet the needs of older residents, such as recreation, support staff, and transportation, or it must provide important housing opportunities for older persons, which the owner can demonstrate would be negatively impacted if he or she was required to rent to those with children under 18.

While it might be possible to qualify the property with its current 80-percent elderly occupancy, it would be best to offer some of the above services.

The manager's view

First, you need to survey the residents in detail to determine their specific needs and desires. As part of the survey, you should ask specific questions as to the types of services and facilities tenants might desire, such as shopping assistance, visiting health care, social programs, and so forth. If the survey reveals a market need to convert to housing for the elderly, economic and market considerations should be explored.

Examine the cost of any improvements that might be necessary to bring the property into compliance and to meet tenant needs. Inform tenants of the added costs, and advise them that rent might increase proportionately. This news may discourage some participants and bring occupancy below the required 80 percent.
COPYRIGHT 1991 National Association of Realtors
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Fair Housing Amendments Act
Author:Magnuson, John W.
Publication:Journal of Property Management
Date:Mar 1, 1991
Words:2756
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