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How many is too many? the need for occupancy guidelines.

Most residental property managers today would probably consider themselves well-versed in fair housing laws: They take care not to exclude minorities, disabled people, or families with children from their properties. But, despite these efforts, many may unwittingly be candidates for discrimination lawsuits.

Consider the following scenario:

The manager of an apartment building advertises a vacancy for a two-bedroom apartment, and a family of five applies to rent the unit. After considering their application, the manager turns it down because the unit is considered too small for five people. The manager is confident that this was a fair decision because:

A. The property management firm has a policy of restricting apartment occupancy to two people per bedroom. The policy is based on experience with facility capacity and other criteria, and the firm has kept careful records over the years of its compliance with it.

B. The manager knows that the Fair Housing Amendments Act allows a firm to regulate occupancy, so long as its standards are "fair and reasonable." Furthermore the U.S. Department of Housing and Urban Development, via its General Counsel, has called a two-people-per-bedroom limit "reasonable under the Fair Housing Act."

C. The city or state in which the firm operates has in place a two-per-bedroom local occupancy code for all multifamily housing. Local rules like this will be considered acceptable housing policy under fair housing legislation.

Which of these defenses will protect this management firm from being sued for discrimination?

The answer: None of the above.

In the four years since the passage of the Fair Housing Amendments Act, the issue of occupancy guidelines - or, more accurately, the absence of such guidelines - has been a hot topic among managers of residential properties.

At the heart of the issue is the fact that, while the 1988 Act forbids managers from discriminating against families with children, it provides no guidelines for maximum occupancy by number of bedrooms or even square footage.

In fact, as many managers are discovering, the absence of either official occupancy standards or case law resulting from the settlement of discrimination claims means that there simply is no recipe for foolproof compliance with the current fair housing laws. As one observer puts it: "The current situation is like being stopped for speeding and asking the arresting officer |What is the legal speed limit?,' only to be told |I don't know. But we decided you were exceeding it, so we're arresting you.'"


The 1988 Act has prompted many managers to consider seriously their exposure to discrimination lawsuits. Indeed, the nationwide trend toward suing now, asking questions later appears unlikely to spare property management.

With this in mind, the Institute of Real Estate Management last year conducted a survey to determine the impact on property management of the 1988 Act. Of the survey respondents who reported problems resulting from the Act, 26 percent said they had received a claim of discriminatory occupancy policies or of discrimination on the basis of familial status. Familial status and discriminatory occupancy standards represented 56 percent of the threats of a claim made to survey respondents.

Based on the results of this study, IREM assembled a panel of its CPM(R) members and late last year released its own analysis of the occupancy problem.

Included in the report are descriptions of existing occupancy guidelines written by the Farmers Home Administration and HUD, and building codes written by the Building Officials and Code Administrators and the International Conference of Building Officials. In the absence of official HUD occupancy rules regarding fair housing, the report was designed to provide managers with the most current advice available on complying with the Act.

"The fact that families are a protected class is well known in the marketplace," says Beverly Roachell, CPM, senior vice president of RPM Management Co., Inc., Little Rock, Ark., and a member of IREM'S occupancy committee. "But, a lot of people are not aware that you can't cram ten children into one bedroom. They think that they have blanket approval to do whatever they want because they're protected as a family."

Roachell says that this misinterpretation of the fair housing laws could easily lead to a rash of discrimination suits. "We keep very good records, because if you turn down someone for bad credit or some other reason, they can accuse you of discriminating based on familial status," she says.

"What concerns me more than anything," says E.H. Camp III, CPM, "is that cloud you have to operate under - when someone can make a claim and, depending on how the local authority decides to investigate it, you can end up defending yourself against a HUD investigation. That can be pretty burdensome."

Camp, who is senior vice president with First Management Services, Nashville, says that the IREM standards report has been helpful to his firm. Because of the fear of litigation, he says, "it's a big concern to be able to turn to [standards] that are fairly safe."

Meanwhile, HUD has been decidedly vague on the subject. (The HUD-authored final rule in the 1988 Act states: "[T]here is nothing in the legislative history which indicates any intent on the part of Congress to provide for the development of a national occupancy code.")

In fact, although HUD's General Counsel last year issued three memoranda on occupancy, it has continued to balk at signing a definitive list of occupancy criteria or even endorsing outside-authored guidelines.


Specifically, the first memo from HUD's General Counsel, Frank G. Keating, written February 21, 1991, and addressed to HUD regional counsel, lists the following standards: For single-room units with no separate bedroom, the maximum occupancy is one person; for one-bedroom units, the maximum is two; two-bedroom units may have a maximum of three occupants; and so on, following a one-per-bedroom-plus-one formula.

This standard, Keating wrote, represents the most restrictive standard that would be considered fair under the Act: "[I]n reviewing Fair Housing cases to decide whether or not there is reasonable cause to believe that discrimination occurred," he wrote, "[HUD] will presume that an occupancy standard no more restrictive than [this] comports with the Fair Housing Act."

One month later, Keating issued another memo that liberalized the standard to a flat rule of two-per-bedroom. (A third memo, issued on March 25, said that the second memo "supersedes" the first.) In the second memo, Keating wrote, "[HUD]" believes that an occupancy policy of two persons in a bedroom, as a general rule, is reasonable under the Fair Housing Act.

"However," he added, "the reasonableness of any occupancy policy is rebuttable, and neither the February 21 memo nor this memorandum implies that [HUD] will determine compliance with the Fair Housing Act solely on the number of people permitted in each bedroom."

Loosely translated, that means that HUD will evaluate other factors of a unit's capacity to house several people in the event a complaint is filed. These include the size of the bedrooms and the entire unit and the ages of the children involved. However, Keating offers no fast and hard rules for either factor.

For example, when considering the size of bedrooms in a discrimination charge, HUD will be more ready to charge managers who limit occupancy in "large" or "spacious" units than those who limit occupancy in "small" units, Keating wrote. How big, exactly, a "spacious" or "small" bedroom is was not explained, and no dimensions were provided.

Similarly, the age of the children involved in a discrimination complaint will be considered. In his March 20 memo, Keating wrote: "The following hypotheticals involving two housing providers who refused to permit three people to share a bedroom illustrate this principle.

"In the first, the complainants are two adult parents who applied to rent a one-bedroom apartment with their infant child, and both the bedroom and the apartment were large. In the second, the complainants are a family of two adult parents and one teenager who applied to rent a one-bedroom apartment. Depending on other facts, issuance of a charge might be warranted in the first [case], but not in the second."

Keating provided no guidance for managers considering the occupancy requirements of families with children between infancy and young-adulthood.

The big variable in the equation is the posture of the local HUD enforcement agents, who make the all-important decision to dismiss or order full-scale investigations of discrimination charges.

Case in point

Consider the experiences of two management firms that currently are facing lawsuits resulting from alleged familial-status discrimination under the Fair Housing Act. (Because these cases still are in litigation, the firms, property managers, and fair housing officials involved will not be identified in this article.) We'll call the first firm ABC Management.

In late 1990, ABC was notified that a complaint had been filed by an applicant to whom it had refused to rent a three-bedroom apartment. The applicant was the head of a five-member household and the apartment, because of its small bedrooms, was being reserved by ABC for occupancy by four or fewer people.

When the complaint was filed, ABC sought to defend itself to local fair housing authorities by citing a city ordinance, similar to those in place several U.S. cities, that limits occupancy based on the size of a unit's bedrooms.

The management firm signed a conciliation agreement with HUD, in which they agreed to attend a three-hour seminar on fair-housing laws and to remove from their occupancy standards restrictions based on relationship of family members, which HUD said was discriminatory. Specifically, the agreement required ABC'S standards to comply with city housing codes, which, the agreement said, were "standards which will not adversely impact families."

However, once the language regarding the relationship of tenants was removed, the property manager, a CPM member, reviewed the local codes and determined that ABC'S policies already were in line with the city's rules on square-footage-based occupancy limits.

The city ordinances covering minimum living space state: "In every dwelling unit of two or more rooms, every room occupied for sleeping purposes by one occupant shall contain at least 70 square feet of floor space, and every room occupied for sleeping purposes by more than one occupant shall contain at least 40 square feet of floor space for each [additional] occupant thereof."

Thus, the manager concluded, a room that sleeps two people should be at least 110 square feet. This was consistent with ABC's existing standards, which limited occupancy in two of the three bedrooms in the apartment in question to one person each (one bedroom is 84 square feet and the other is 95 square feet). The manager obtained verification of this from the city attorney's office, and forwarded it, along with his own explanation of the decision to leave the occupancy standards alone, to the HUD office.

Soon thereafter, however, ABC received a formal notice from the office of its "breach" of the conciliation agreement which, the HUD examiner wrote, would prompt HUD to refer the complaint against the firm to the U.S. Department of Justice "for enforcement action."

A point of contention between the manager and the authorities was the distinction between a "bedroom" and a "sleeping room." According to the HUD examiner, managers may not refuse an application based on the number of bedrooms if the unit in question has other rooms that may be used for sleeping.

In her letter notifying the firm of HUD's intention to carry the case to the Department of justice, the HUD examiner wrote: "Be advised that the use of the word |bedroom' is incorrect and misleading. The city code uses the term |sleeping room'... [which] could be a living room or dining room."

This, however, would seem at odds with both the 1988 Act and the second (and prevailing) Keating memo, which stated: "If a dwelling is governed by state or local occupancy requirements, and the housing provider's policies reflect those requirements, HUD would consider the governmental requirements as a special circumstance tending to indicate that the housing provider's occupancy policies are reasonable."

A spokesperson for the regional HUD office involved in ABC's dispute declined to comment on the case.

What is a bedroom?

Apparently, managers and HUD officials differ on the definition of an acceptable sleeping area. While managers may define strictly a "bedroom" for insurance or property valuation purposes, they have no such definitions to turn to when faced with a potential discrimination claim.

An official document issued by one regional HUD office, which a representative says was based on national HUD guidelines for appraisers in valuating properties, offers this definition: A bedroom is a private room off the main living area... The room should be of sufficient size to permit a reasonable amount of bedroom furniture, have a door for privacy, and must contain a window for ventilation and secondary egress. A room that has its access through another bedroom, or which is not separated with a door from another room, does not meet the definition."

A spokesman for HUD's central office in Washington, who asked not to be named, says that HUD has no official definition of either a bedroom or an acceptable sleeping area. He offered no comment on the applicability of this definition to familial status/fair housing standards. Instead, he reiterated the position of Keating's memos that the initial determination of the fairness of any occupancy policy rests in the hands of the regional HUD investigators, who report their findings to the Department along with a recommendation for or against further action against the property owner or manager.

"[The regional investigators] look at each [claim] on a case-by-case basis," the HUD spokesman says. "We want to look at each case individually."

In addition, the spokesman confirmed that compliance with local standards does not necessarily offer protection from a discrimination claim: "We consider any state or local rules, but they have to be in compliance with what the 1988 Fair Housing Amendments Act says."

Barbara Knox, deputy director for fair housing and equal opportunity at the Chicago HUD office, says examiners also will consider local ordinances covering fire safety and other overcrowding issues when evaluating the "fairness" of any occupancy policy. "It doesn't matter what HUD's definition [of fair occupancy] is," she says. "We're going to be guided by the local code."

"If a manager [proves] that the local occupancy code doesn't define a sleeping area [but] the fire code goes into more detail and would prohibit a room from being used as a sleeping area, I think the manager would be on safe ground," Knox explains.

Another case

Meanwhile, another property management firm is defending itself on much the same "bedroom" issue. For the purposes of this article, we'll call that firm XYZ Management.

In late May, XYZ declined a verbal request regarding the rental of a two-bedroom apartment from the head of a five-person household, citing its own two-per-bedroom occupancy standards. (The city in which XYZ operates has no local occupancy standards.)

The president of the management company, a CPM member, says that the applicant insisted that the apartment in question - a two-floor unit with two bedrooms and a large sitting area - was big enough for his family because his youngest child is an infant.

Are we going to have to say that walk-in closets count as bedrooms?" she asks. "The point is, if HUD wants to set the standards for occupancy, then they should publish them and let us live by them."

Looking ahead

Because of the absence of HUD-endorsed occupancy standards, managers of residential properties across the country may well be scrambling for defenses against unforseen claims of familial status discrimination for years to come.

Indeed, until enough cases are tried and settled to allow for sufficient case law to be developed, occupancy standards will continue to present problems (see sidebar).

"The problem is that everybody's concerned about getting caught in litigation," says Gary Hediger, CPM president of Hediger Enterprises, Inc., Greenville, S.C. "You might win it, but it's going to be expensive."

Hediger says that the situation could be greatly improved if individual states or municipalities would adopt uniform standards. We would hope that the states would adopt [IREM's] guidelines so that everybody would have the same occupancy standard. But, currently, the [standards] are all over the map."

Frederick Prassas, CPM, president of Property Management Concepts, Ltd., La Crosse, Wis., recently joined a successful local lobbying effort that convinced the Wisconsin legislature to authorize the development of statewide occupancy standards. "The only solution I know is to have each state create guidelines. Then you can get away from that nebulous definition of |fairness.'"

Developing real rules, Prassas says, is the only way to settle the question of fair occupancy. "Property managers are very quantitative and specific people," he says. "They don't like not knowing how to follow the rules."
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Author:Schindler, Martha
Publication:Journal of Property Management
Date:Jul 1, 1992
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